TOKYO: Asian shares rallied to a three-month high and the euro touched a one-month high against the dollar on Monday, as a stronger-than-expected US jobs data and emerging optimism for European action on the debt crisis bolstered risk appetite.
But caution is likely to remain until concrete measures are taken, which may be weeks away, and investors in the meantime will be looking to data out of China starting Thursday -- from trade to bank loans and investment -- to give the global economic outlook a further lift.
China's central bank on Sunday pledged to intensify monetary policy fine-tuning and improve credit policy to bolster the world's second largest economy.
With the euro zone debt crisis crippling global economic activity, Southeast Asia's largest economy, Indonesia, will likely report its second quarter gross domestic product grew 6.1 per cent on Monday, indicating its once-sizzling economy is starting to cool and show gaps in its resilience against a global slowdown.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.6 per cent to its highest in three months, with Hong Kong shares rallying 2 per cent to be among the region's top performers. Japan's Nikkei stock average jumped 1.7 per cent.
“Time has come to shift funds to risk assets, as markets have very limited room for further downside from here,” said
Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.
“Investors may be questioning why they rushed to sell when the ECB and the Fed both have been saying they will take action when necessary. They never said they won't do anything.”
Looking back, June might have marked the turning point when European policymakers agreed to a broad framework to shore up the region's troubled banks, and markets' sharp swings in the past month may have only helped consolidate the bottom, he said.
European shares rose to four-month highs on Friday and the euro surged as investors re-evaluated the European Central Bank's statement after its policy meeting on Thursday which hinted at upcoming policy steps to contain surging borrowing costs in Spain.
Better-than-expected US jobs data spurred unwinding of safe-haven holdings in treasuries and the dollar while boosting US and European equities and oil on Friday.
At the same time, a rise in the jobless rate left most economists still expecting further monetary stimulus from the Federal Reserve as soon as September.
“We think the likelihood of further central bank moves remains high, particularly in Europe ... this bodes well for risk,” Barclays Capital analysts said in a research note.
The euro earlier on Monday rose to its highest since July 5 of $1.2444, while the dollar was at 78.41 yen, off a two-week high of 78.77 hit on Friday when weakening safe-haven demand weighed on the yen.
“When you think about the fact that something positive will probably materialise even if it takes some time, the euro could see a bit of a rebound,” said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, referring to possible ECB measures.
RISK APPETITE REBOUNDS
A rebound in riskier assets improved sentiment in Asian credit markets, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by 7 basis points.
Oil eased after rallying on Friday, with Brent down 0.4 per cent at $108.47 a barrel and US crude futures down 0.3 per cent at $91.17 a barrel.
As the dollar eased and the euro rose, spot gold inched up 0.1 per cent to $1,604.86 an ounce.
“Any improvement is a positive at the moment, we've seen a lot of weakness recently,” said David Spry, research manager at F.W. Holst.
“The market is pretty much running on sentiment, what's happening in global markets.” As risk aversion abated, the CBOE Volatility index, which measures expected volatility in the Standard & Poor's 500 index over the next 30 days, plunged 11 per cent to close at 15.64 on Friday.
Some analysts cautioned that the VIX nearing the 13.70-15.30 area of support has always provoked at least an interim reversal in trend.
Spain's economy minister told a newspaper on Sunday that Madrid has time to wait for clarity on what a full European rescue would involve as it has already covered the majority of its debt needs for the year.
On Friday, its prime minister had signalled that he may seek an aid package.
Greece, which faces a 3.2 billion euro bond maturity on August 20, is leaning towards issuing treasury bills to plug a cash squeeze this month, its deputy finance minister said, as Greece's international inspectors held their final verdict on Athens's budget cutting efforts until next month.