TOKYO, Oct 2 (Reuters) – Asian stock markets made a tentative start to holiday-thin trading in the fourth quarter on Monday, with the dollar firming sideways and a last-minute deal to avoid a U.S. government shutdown lifting S&P 500 futures. .
Markets in India, Hong Kong and China were closed for the holiday.
Japan’s Nikkei (.N225) rose as much as 1.7%, retreating to an afternoon flat. The yen fell to a fan of 150 per dollar and its weakness is a boon for exporters and their foreign earnings are priced in yen.
An eleventh-hour deal to avoid a US government shutdown, struck over the weekend, also helped sentiment and lifted US stock futures in Asia by 0.5%. A weekend stopgap on the fiscal bill allowed the government to operate until November 17, and key data releases, including Friday’s monthly payrolls report, could go ahead on time.
European futures rose 0.2%.
“Discontinuation risks are delayed, not eliminated,” DD Securities strategists wrote in a client note.
“Reduced uncertainty is likely to bring a small relief to markets,” but “market volatility will remain high as investors wait for the next catalyst, which could be top-line data.”
Japanese stocks were also boosted by the Bank of Japan’s quarterly Tangan survey, which showed an improvement in business sentiment. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was flat.
Bond and foreign exchange trade continued to be buoyed by expectations of higher US interest rates and a sell-off in Japanese bonds on Monday.
Benchmark 10-year Japanese government bonds rose one basis point to a decade high of 0.775%. The Bank of Japan said on Wednesday it would buy bonds with maturities of 5-10 years, with the size of the purchases to be announced later. Future jumped on the news.
In the Treasury market, the 10-year yield rose 4 bps to 4.6124%, while the two-year yield rose 3.7 bps to $5.0832%.
The dollar edged higher in currency markets, although last week’s milestone high against the yen was saved, reaching its highest level since last October at 149.74 yen.
“The relative US growth slowdown and (a) hawkish Fed are factors that will continue to support the dollar, until US data starts to show more material signs of softening,” said OCBC currency strategist Christopher Wong.
Mixed China factory surveys and expectations of no change in rate settings at central bank meetings in the coming days put pressure on the Australian and New Zealand dollars.
The Aussie fell 0.5% to $0.6400 and the Kiwi was down 0.2% to $0.5986. The euro was a touch weaker at $1.0564.
Crude oil was steady after falling late in the week
Brent December crude futures were up 16 cents, or 0.2%, at $92.36 a barrel. U.S. West Texas Intermediate crude futures were up 20 cents, or 0.1%, at $90.99 a barrel.
Reporting by Kevin Buckland. Additional reporting by Tom Westbrook in Singapore; Editing by Edwina Gibbs & Simon Cameron-Moore
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