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Japan equities rise and yen weakens after GDP

Monday 04:15 GMT

Overview

Equities climbed and the yen softened after Japan reported gross domestic product figures for the final quarter of 2016 that suggested any monetary policy settings will remain on hold for now.

Hot topic

Japan’s economy closed out 2016 with growth of 0.2 per cent in the fourth quarter, below estimates of 0.3 per cent despite a boost to exports from a weaker yen as domestic demand came up short. The quarterly reading brought full-year GDP growth for 2016 to 1 per cent, broadly in line with analysts’ expectations.

The yen was softer following the release of GDP data, weakening as much as 0.8 per cent to ¥114.17 against the dollar.

Marcel Thieliant, senior Japan economist at Capital Economics, said the data “suggest that spare capacity was broadly unchanged last quarter, but the current level of the output gap remains consistent with consumer prices rising by around 1 per cent per annum . . . As such, the Bank of Japan will likely leave policy settings unchanged for a prolonged period, but any speculation on policy tightening should prove premature.”

Equities

Asian stock markets were performing well in the face of a slightly stronger dollar. In Tokyo the broad Topix index was up 0.6 per cent, with the energy sector climbing 3.7 per cent as Inpex jumped 5.9 per cent following better than expected earnings after market close on Friday. The Nikkei 225 was up 0.5 per cent.

Australia’s S&P/ASX 200 was up 0.6 per cent, led by a 2.3 per cent gain in the materials segment. Nickel miner Western Areas was up 4.9 per cent after announcing it had found a “potentially significant extension” to resources at one of its projects.

In Hong Kong the Hang Seng index added 0.5 per cent, pushed higher by a 0.8 per cent gain for information technology stocks. In China the Shanghai Composite index was up 0.6 per cent while the Shenzhen Composite index was up 0.7 per cent.

Forex

The dollar index measuring the US currency against a basket of peers was up 0.1 per cent in Asia.

The Australian dollar was down 0.1 per cent against the greenback at $0.7664. The pound was flat against the dollar at $1.2489 while the euro slipped 0.2 per cent to $1.0620.

China’s renminbi was 0.1 per cent softer against the dollar at Rmb6.8830 after the People’s Bank of China set the currency’s daily trading band weaker by the same amount.

Fixed income

Movements in sovereign bond yields, which move inversely to price, were mild. The yield on 10-year US Treasuries was up 1 basis point at 2.422 per cent.

The yield on 10-year sovereign Japanese bonds was flat at 0.078 per cent, little changed after the GDP report. The 10-year Australian government bond yield was up 1bp at 2.701 per cent, while the yield on comparable New Zealand bonds was up 1bp at 3.188 per cent.

Commodities

Oil prices were retracing an initial dip made after an IHS Markit report showing there were just 174 oil and gas discoveries worldwide last year, suggesting the world is likely to become more reliant on “unconventional” resources such as US shale oil and gas.

Brent crude, the international marker, was down 0.1 per cent at $56.62 per barrel, after gaining 1.0 per cent on Friday. West Texas Intermediate, the US marker, was off 0.1 per cent at $53.80 per barrel.

Gold dropped 0.3 per cent to $1,229.52 an ounce.

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