By Kenan Machado
Lower crude prices boost region's oil companies
Japanese equities kicked off the new year sharply higher on Wednesday, leading the region's gains amid a robust outlook for the U.S. economy, coupled with expectations of continued yen weakness.
The Nikkei Stock Average was up 2.2%, with the market reopening after a four-day holiday weekend, helped by gains in financial and export-oriented stocks.
Among key outperforming shares, Shinsei Bank (8303.TO) gained 4.1%, with Mitsubishi UFJ (MTU) adding 4.4%. Honda Motor (HMC) and Mitsubishi (7211.TO) ach gained 4.2%.
Other Asian markets also tracked Japan's gains, with Singapore's Straits Times Index up 0.8%, and the FTSE Bursa Malaysia Index adding 0.4%. Australia's S&P/ASX 200 was up 0.1%.
"Today was the first day of trade in Japan and market participants are reacting to the good news over the global economy," said analyst Masashi Murata, who covers regional and emerging markets for Brown Brothers Harriman.
The outlook for the global economy is strong with inflation picking up in the U.S. and Europe, he said.
Overnight, the U.S. dollar gained to a 14-year high, boosted by data that underscored the strength in the nation's economy. The Institute for Supply Management's manufacturing index, released Tuesday, rose to its highest level in two years. The news pushed the WSJ Dollar Index up 0.3% to its highest level since mid-2002.
In Asian trade Wednesday, the index narrowed its gains and was last up 0.1%. Still, the dollar-yen pair rose 0.2% on Wednesday, with a weaker yen making Japanese exports more competitive.
Meanwhile, theNikkei Japan Manufacturing Purchasing Managers' Index, a key measure of manufacturing activity, rose to 52.4 in December from 51.3 in November, the highest reading since December 2015. A reading above 50 indicates expansion.
The U.S. dollar has been gaining strength on expectations that the U.S. Federal Reserve will raise interest rates further to counter inflation. The concerns over inflation come as President-elect Donald Trump is widely expected to unveil a fiscal stimulus package to boost the economy.
"Trade is very much focused on the dollar versus the yen and the euro," said Michael McCarthy, chief market strategist at CMC Markets in Sydney. "If the dollar is stronger then there is very much a risk on trade."
But despite a stronger dollar, which makes contracts priced in the currency more expensive, commodities stocks rallied on Wednesday. Australia's Fortescue Metals (FMG.AU) gained 1.9% and BHP Billiton (BHP.AU) rose 0.5%.Crude oil also recovered with prices for Brent crude, the international oil benchmark, rising 0.5% to $55.72 a barrel early Wednesday, recovering from overnight declines.
Japan Petroleum Exploration (1662.TO) gained 4.2% with oil firm Inpex (1605.TO) adding 2.1%. Australia's Oil Search (OSH.AU) added 1.4% as well. Hong Kong-listed shares of China Shenhua (1088.HK) added 4.2% with KunLun Energy (0135.HK) gaining 0.4%.
Oil futures had fallen on Tuesday in the U.S. over doubts as to whether major producers will be able to follow through on an agreement to cut production.
In China, the Shanghai Composite was up 0.3% ahead of the release of the China Services Purchasing Managers' Index. On Tuesday, a private gauge of manufacturing came in at the strongest level since early 2013.
(END) Dow Jones Newswires
January 03, 2017 23:23 ET (04:23 GMT)
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