Asia stocks rally on steady Fed bet, oil bounces

A man walks past at an electronic board showing the Japanese yen's exchange rate against British pound (R) and Euro outside a brokerage in Tokyo, Japan, July 6, 2016. REUTERS/Issei Kato

SYDNEY – Asian shares advanced on Monday as markets wagered the U.S. Federal Reserve would skip a chance to raise rates this week, while oil bounced on talk of an OPEC deal on output and reports of fighting around Libyan oil ports.

In Europe, British, French and German bourses were expected to start about 1 percent higher, while MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.2 percent, led by the technology, financial and energy sectors.

Shanghai put on 0.5 percent, while Taiwan jumped 2.8 percent after a string of losses. Liquidity was lacking, with Tokyo closed for a holiday.

EMini futures for the S&P 500 ESc1 were trading around 0.4 percent firmer. On Friday, the S&P 500 had eased 0.38 percent and the Dow 0.49 percent.

Bombings in New York City and New Jersey and a stabbing at a Minnesota shopping mall inspired some caution in markets.

While U.S. officials are investigating the attacks as potential “acts of terrorism,” they stopped short of characterizing the motivation for any of them until more evidence is uncovered.

Investors are counting down to the Federal Reserve’s Open Market Committee meeting Sept. 20-21, with chair Janet Yellen holding a news conference on Wednesday.

A surprisingly large rise in U.S. consumer price inflation reported on Friday seemed to add to the case for a hike and pushed the dollar higher.

Yet most recent consumer and industrial activity data has disappointed, leaving the market still pricing in only a 12 percent <0#FF:> probability of a rate rise this week, and 45 percent for December.

Assuming no move on policy, the focus will be on the FOMC’s forecasts for the funds rate, which this time extend to 2019.

“They may use the extension to lower their expectations for rates in 2017 and 2018, so that they end up with the same terminal level of rates, but just take longer to get there,” said Marshall Gittler, head of investment research at FXPRIMUS.

“In other words, a slower, more gradual pace of tightening. In that case, I would expect the dollar to weaken.”

BOJ A GREATER UNKNOWN

The Bank of Japan also meets on Wednesday and could well go in the opposite direction by easing policy, though conflicting reports on what it might do have stoked much uncertainty.

Sources have said the BoJ will consider making negative interest rates the centerpiece of future easing by shifting its prime policy target away from base money.

Any steps that markets consider to be less than aggressive would be likely to see the yen push higher and pressure the Nikkei .

The dollar had eased to 102.04 yen, surrendering some of the gains made on Friday in the wake of the firm U.S. inflation figures.

The dollar index, which measures the greenback against a basket of six currencies, dipped 0.3 percent to 95.845 .DXY.

The euro EUR= was just above a 10-day low at $1.1168, while sterling inched up from a one-month low to $1.3048 GBP= after suffering jitters on plans to leave the European Union.

British Prime Minister Theresa May signaled that she could be ready to launch formal Brexit negotiations in January or February, European Council President Donald Tusk has said.

Oil prices bounced on reports of clashes at Libyan oil ports. Eastern Libyan forces said they had re-established control over two ports where an ousted faction launched a counterattack on Sunday, briefly seizing one terminal.

Venezuelan President Nicolas Maduro was also reported as saying a deal between OPEC and non-OPEC members was “close” and he aimed to announce a deal to stabilize the market this month.

Brent crude LCOc1 rose 79 cents to $46.55 a barrel, while U.S. crude CLc1 added 81 cents to stand at $43.84. – Reuters

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