Global equities continued to build on recent gains Monday, as markets recover from their start-of-the-month slump.
Despite the continuing strength as February comes to a close, a number of indexes in the Asia-Pacific are still trading down about 5% for the month.
Most of the region’s stock markets started well Monday. Japan’s Nikkei NIK, +1.19% rose as much as 1.5% early, but finished morning trading with a 0.8% gain as the yen jumped to session highs on comments from Bank of Japan Gov. Haruhiko Kuroda. During an appearance before parliament, he reiterated that there is no plan for another comprehensive review of the central bank’s current efforts and that it continues to target getting inflation to 2%.
Meanwhile, the stronger yen is likely hurting the BoJ’s efforts to fuel inflation. Bank of America Merrill Lynch estimates that for every 5% drop for the dollar against the yen, Japan’s core inflation rate is pushed down about 0.1 percentage point. “Any further yen appreciation could pose a downside risk” to the price outlook, the investment bank said.
The yen was down about 0.2% against other major currencies Monday morning, but with the rally in the wake of Kuroda’s comments, it was recently up 0.3% versus the dollar JPYUSD, +0.234471% at ¥106.60.
Stock indexes elsewhere in the region were widely up about 0.5%. In China, equities jumped at least 1% in Shenzhen 399106, +2.24% , where many smaller companies are listed, while big-cap-heavy benchmarks in Shanghai SHCOMP, +1.23% fell before rebounding some.
Investors are also monitoring news that China’s Communist Party has proposed the elimination of the constitutional cap on presidential terms, setting the stage for Xi Jinping to rule indefinitely.
“By all means, lament the lack of political debate in China,” said Rob Carnell, ING’s head of Asia research, “but from an investment perspective, there are some upsides.”. He cited the continuation of deleveraging policies, flexibility over China’s capital account and currency, and the implementation of ongoing antigraft measures as examples.
Investor sentiment, said Vishnu Varathan, a senior economist at Mizuho Bank in Singapore, is being broadly helped by the Federal Reserve’s semiannual monetary-policy report to Congress, which was released Friday.
The report signaled that the Fed wasn’t worried about the volatility in financial markets earlier this month and remained on track to gradually raise interest rates. This indicated to investors that the “game plan hasn’t changed substantially,” arathan said.
But Saxo Bank’s Kay Van-Petersen cautioned about markets turning complacent ahead of elections in Italy on Sunday. “Everyone seems to be discounting any effect or threat from that,” he said in a morning call to investors.
The S&P 500 jumped 1.6% on Friday, and futures ESH8, +0.42% were recently down 0.1%. Gold and oil futures were recently up about 0.5%.