28 Jul 2014

Asia Stocks Rise as H Shares Head for Bull; Soybeans Gain


                      Asian stocks rose, with a gauge of Chinese shares in Hong Kong heading toward a bull market, while Treasuries and oil slipped as investors await data on U.S. services before the Federal Reserve meets this week. Soybeans and corn rallied.
The MSCI Asia Pacific Index (MXAP) added 0.3 percent by 12:33 p.m. in Tokyo, following last week’s 1.4 percent advance. The Hang SengChina Enterprises Index climbed to 11,105.70, more than 20 percent above a March 20 closing low, while trading volume in Shanghai surged. Standard & Poor’s 500 Index futures lost 0.1 percent and the yield on 10-year U.S. notes climbed one basis point after the equity benchmark retreated from a record. Oil in New York and London dropped at least 0.4 percent. Soybean and corn futures jumped at least 0.9 percent.
U.S. reports on services activity and pending home sales are due before the Fed meets to discuss monetary policy, while Goldman Sachs Group Inc. said last week rising yields may spur a retreat in global stocks and bonds over the next three months. Chinese industrial-company profits jumped the most last month since September, data yesterday showed. Israel resumed its offensive against Hamas militants in the Gaza Stripafter a lull in fighting, while the U.S. said it has photos of Russia shelling into Ukraine.
“Sentiment has turned in favor of growth and cheap valuations in the Chinese market,” said Khiem Do, who helps oversee about $60 billion as the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd. The shares have “been lagging for a long time so they’re catching up with world markets. The Fed has communicated to the market that the first Fed-fund rate hike will be more like next year than this year, so should they change their mind then that would be quite negative.”

Asian Valuations

The Hang Seng China Enterprises Index climbed 1 percent today, after it jumped 5.3 percent last week, the most since March. The Hang Seng Index advanced 1 percent while the Shanghai (SHCOMP) Composite Index surged 2.1 percent, with the number of transactions about 170 percent above the 30-day average for the time of day.
The gauge of Chinese shares in Hong Kong trades at 7.7 times estimated earnings, compared with 13.6 times for MSCI’s Asia-Pacific measure. The S&P 500 is at 16.6 times.
Profits at industrial companies in Asia’s largest economy increased by 17.9 percent in June from a year earlier, after gaining 8.9 percent in May, data from China’s statistics bureau yesterday showed. It was the biggest gain since an 18.4 percent climb in September of last year and came after a private gauge of Chinese manufacturing advanced to an 18-month high, data last week showed.

Price Gap

The Hang Seng China AH Premium Index climbed 1.7 percent to 91.65, signaling a narrowing gap between the Hong Kong and mainland share prices of companies with dual listings. A link between the Shanghai and Hong Kong bourses will start from Oct. 13, the National Business Daily said, citing an unidentified brokerage.
The S&P/ASX 200 Index (AS51) was little changed in Sydney, while South Korea’s Kospi index climbed 0.6 percent. Markets in Indonesia, Malaysia and Singapore are closed for holidays.
Goldman Sachs cut its rating on stocks to neutral, the equivalent of hold, for the next three months, according to a quarterly research report from its portfolio strategy group July 25. The bank also lowered corporate credit to underweight and predicted U.S. government bond yields will increase.

U.S. Notes

Amazon.com Inc. drove U.S. stock declines July 25, sliding almost 10 percent after reporting the widest loss since 2012, distracting investors from an earnings season where 79 percent of S&P 500 members have exceeded analysts’ profit estimates. The benchmark U.S. equity gauge fell 0.5 percent to 1,978.34 July 25, declining for the first time in four days.
Yields on 10-year Treasuries climbed to 2.48 percent after slipping four basis points July 25. Australian bonds due in a decade paid 3.42 percent, after rates rose six basis points, or 0.06 percentage point, last week.
The gap between rates on 30-year Treasury notes and five-year debt narrowed to the least since 2009 last week as uncertainty over whether the U.S. economic recovery is on a strong footing vied with concern that the Fed may raise rates earlier than previously anticipated.
The Treasury will auction $29 billion in two-year securities today, $35 billion in five-year debt tomorrow and $29 billion in seven-year bonds July 30. It will also sell $15 billion in two-year floating-rate notes July 30.
Employers probably added 231,000 workers to nonfarm payrolls in July, after a 288,000 increase in June, according to 69 economists’ estimates compiled by Bloomberg before Aug. 1 reports.

Copper, Lead

The Markit Economics composite and service industries purchasing managers’ indexes for the U.S. are due today, along with data on pending home sales. An update on second-quarter gross domestic product is scheduled for July 30, with the FOMC meeting July 29-30.
Copper for delivery in three months on the London Metal Exchange fell as much as 0.5 percent to $7,090 a ton. Freeport-McMoRan Inc. said July 25 that it will resume full operations in Indonesia at its Grasberg copper operation, the world’s third-largest, and plans to restart exports next month after resolving a dispute with the government.
Lead on the LME rose as much as 0.8 percent to $2,284 a ton, heading for the highest close this year. The metal gained 3.7 percent last week, the biggest advance since January. Aluminum was up 0.7 percent to $2,010.50 a ton. - Bloomberg

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