Asia stocks try to share Wall Street joy, U.S. yields a burden

SYDNEY Asian stocks crept to one-week highs on Wednesday as investors tried to share in the exuberance of Wall Street, where the three main indices seized record peaks for a second straight session.

Australia’s main index led the early action with a rise of 0.5 percent to a one-month top, helped by strength in bulk commodity prices.

Japan’s Nikkei .N225 was closed for a holiday after enjoying a five-session winning streak that took it to the highest finish since January.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS also added 0.3 percent, edging further away from four-month lows hit on Monday.

Emerging market shares have struggled in recent days as surging U.S. bond yields sucked much-needed capital out of Asia. President-elect Donald Trump’s past talk of trade tariffs has also weighed on sentiment in the export-intensive region.

Analysts at JPMorgan said Trump’s latest pledge to dump the Trans-Pacific Partnership was already priced into markets.

“What may not be factored in is the possibility of follow-through on other, more protectionist campaign proposals,” they wrote in a note to clients.

“We remain concerned about this as a source of downside risk, delivering a negative surprise to markets which so far appear to be enamored of his emphasis on fiscal stimulus and deregulation since the election.”

That love-affair was evident on Wall Street where the Dow .DJI closed up 0.35 percent and above 19,000 for the first time. The S&P 500 .SPX gained 0.22 percent and the Nasdaq .IXIC 0.33 percent. [.N]

Still, the market is starting to look expensive with the S&P 500 trading near 17.3 times forward 12-month earnings, compared to the 10-year median of 14.7, according to StarMine data.

YIELDS UNDERMINE EURO

With equities in demand, U.S. bonds were getting the cold shoulder. Two-year note yields US2YT=RR rose as far as 1.107 percent on Tuesday, the highest since April 2010.

Yet euro debt was thrown a lifeline by European Central Bankers who reaffirmed their commitment to super-easy monetary policy. That saw yields on German two-year paper dive to record lows around -73 basis points DE2YT=RR, which in turn expanded the yield premium offered by Treasuries to an 11-year peak.

The widening spread kept the euro pinned at $1.0628 EUR=, not far from last week’s one-year trough at $1.0569. Against a basket of currencies, the dollar was steady at 101.00 .DXY.

The dollar also kept most of its recent hefty gains on the yen at 111.00 JPY=, though it has met resistance around 111.35 in the last couple of sessions.

Sterling was precariously poised at $1.2422 GBP= ahead of a budget update from British Finance Minister Philip Hammond.

Analysts expect some modest infrastructure spending and housing stimulus, but nothing that would radically change expectations of a weaker economy next year when difficult talks begin on the terms of Brexit. [GBP/]

Oil prices were steady for the moment as the market hung on every comment from OPEC officials on whether cartel members would agree to an output cut. [O/R]

Brent crude LCOc1 was up 15 cents at $49.05 a barrel, while U.S. crude CLc1 added 2 cents to $48.05 a barrel.

Industrial metals advanced on talk of demand from China and the whole global reflation trade. Copper hit a 16-month high, while iron ore surged anew thanks to higher steel prices.

(Reporting by Wayne Cole; Editing by Eric Meijer)