By Kenan Machado and Ese Erheriene
A positive outlook on the economies of the U.S., Germany and Japan helped Asian traders on Tuesday look past the fallout of attacks in Berlin and Turkey.
Speaking at the University of Baltimore’s midyear commencement ceremony on Monday, U.S. Federal Reserve Chairwoman Janet Yellen said recent improvements in the economy have created one of the strongest job markets in years for graduates.
“[Yellen] is really expecting the U.S. economy to be growing strongly,” said Greg McKenna, chief market strategist at AxiTrader. That in turn led to a return of risk-on trade in the market despite the attack in Berlin and the killing of Russia’s envoy in Turkey, he said. “Markets seem to have moved on.”
The Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK +2.13% closed up 0.5%. Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO -0.86% was last up 0.5%, Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 -0.90% added 0.2%, and Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI -1.17% lost 0.6%.
Overnight, all three of the major U.S. stock indices notched gains, with the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.16% rising 0.2%, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.12% adding 0.2%, and the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.33% gaining 0.4%.
The Bank of Japan on Tuesday raised its assessment of the economy for the first time since May 2015, closing a turbulent year on a positive note, but stood pat on monetary policy.
The yen saw some early safe-haven buying against the euro /zigman2/quotes/210561215/realtime/sampled EURJPY -0.0597% following the attacks in Berlin and Turkey. Russia’s envoy to Turkey was shot and killed in Ankara during a gallery opening Monday.
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The Japanese currency /zigman2/quotes/210561789/realtime/sampled USDJPY +0.1333% gained as much as 0.8% against the dollar on Tuesday. However, those gains largely unwound during the session, particularly following comments by Bank of Japan Governor Haruhiko Kuroda that showed support for, and a tolerance of, yen weakness.
The yen was last down 0.7% to the dollar and hovering around the psychologically crucial ¥118 benchmark.
The yen reversal, however, failed to save export stocks though with Suzuki Motor /zigman2/quotes/201794956/delayed JP:7269 +1.90% down 1% for the day, Toshiba /zigman2/quotes/205628942/delayed JP:6502 -1.52% losing 1.1% and Panasonic /zigman2/quotes/201785256/delayed JP:6752 +0.76% declining 1.5%.
In the bond market, the U.S. government-bond market rallied Monday after the biggest six-week selloff in more than seven years. Geopolitical news added to demand for haven bonds and contributed to lower bond yields, traders said.
The yield for U.S. Treasurys settled at 2.544% Monday, compared with 2.6% Friday, which was the highest close since September 2014.
“We’ve had a little bit of a setback for risk appetite with the events in Turkey and in Germany,” said Christoffer Moltke-Leth, director of global sales trading at Saxo Capital Markets.
Even so, positive news from Germany helped markets tide over the developments. The $3.5 trillion (annual gross domestic product) economy showed signs of a “marked acceleration” at year-end, Bundesbank said Monday.
China’s 10-year government bond futures fell 1.1% after opening, and were last down 0.4%, after China’s central bank said that, starting next quarter, it will include off-balance sheet investments in its assessment of financial institutions’ risk.
The proposal has sparked jitters in the bond market, as financial institutions may face further scrutiny of the bonds they funnel into high-yielding wealth management products.
“Now that a time frame is confirmed [for the enhanced regulation], investors are worried about tightening liquidity,” said Zhou Xu, an analyst at Nanjing Securities. “A weak bond market will also be a drag on stocks.”
The yield on China’s benchmark 10-year government bond was last at 3.379% compared with 3.342% late Monday.
The wealth management crackdown also weighed on China’s domestic equities, with the benchmark Shanghai index /zigman2/quotes/210598127/delayed CN:SHCOMP -0.19% down 0.5% at 3,102.88 and the Shenzhen Composite Index /zigman2/quotes/210598015/delayed CN:399106 -0.16% off 0.1% at 1,981.32.