Equities rise and yen softens after Japan GDP comes up short

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Equities climbed and the yen softened after Japan reported a somewhat weaker than expected rise in gross domestic product for the final quarter of 2016.

Japan’s economy closed out 2016 with slower than expected growth of 0.2 per cent in the fourth quarter despite a boost to exports from a weaker yen as domestic demand came up short. The latest quarterly reading brought the annual rise in gross domestic product to 1 per cent.

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 Monday’s 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 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.”

Asian stock markets were performing well in the face of a slightly stronger dollar. Tokyo’s broad Topix index was up 0.5 per cent, with energy stocks climbing 4 per cent. Oil and gas company Inpex jumped 6.1 per cent following better than expected earnings reported after-market on Friday. The Nikkei 225 index was up 0.5 per cent as well.

Australia’s S&P/ASX 200 was up 0.7 per cent led higher by the materials segment, which rose 2.2 per cent. Shares in nickel miner Western Areas were up 5.5 per cent after the company announced it had found a “potentially significant extension” to resources at one of its projects.

In Hong Kong the Hang Seng index started the morning session with a rise of 0.4 per cent, pushed higher by energy stocks, which climbed 1.2 per cent. Chinese equities were more mixed, with the Shanghai Composite index up 0.2 per cent and the Shenzhen Composite index down 0.2 per cent.

The dollar index measuring the greenback against a basket of peers was up 0.2 per cent in morning Asia trade as the yen softened.

The Australian dollar was down 0.1 per cent against its American counterpart at $0.7662, while the pound was flat against the dollar at $1.2487 while the euro had shed 0.1 per cent to $1.0623.

China’s renminbi was 0.1 per cent softer against the greenback at Rmb6.8877 after the People’s Bank of China set the currency’s dollar trading band weaker by the same amount.

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

Yield on 10-year sovereign Japanese bonds was up 1bp at 0.082 per cent, little changed after the release of GDP data. That for 10-year Australian government bonds was up 1bp at 2.699 per cent, while yield on the 10-year sovereign note for New Zealand was up 2bp at 3.197 per cent.

Oil prices were paring back from Friday’s gains after a report from IHS Markit showed there were only 174 oil and gas discoveries worldwide last year, suggesting the world is likely to become more reliant on “unconventional” resources like US shale oil and gas. Brent crude, the international marker, was down 0.3 per cent at $56.53 per barrel, while the US marker, West Texas Intermediate, was off 0.2 per cent at $53.72 per barrel.

Gold was having a mediocre session, as the price for one ounce of the yellow metal fell 0.2 per cent to $1,230.73.

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