Japan shares jump as yen bows to strong dollar

By Wayne Cole

SYDNEY (Reuters) – Asian shares followed Wall Street higher on Wednesday as a bullish outlook from the head of the U.S. central bank buoyed the dollar, lifted Tokyo shares to a one-month top and sent gold to a one-year trough.

Japan’s Nikkei () leapt out of the blocks with a 1 percent gain as a weakening yen promised to fatten exporters’ profits.

MSCI’s broadest index of Asia-Pacific shares outside Japan () added 0.16 percent and South Korea’s market () 0.85 percent.

Federal Reserve Chairman Jerome Powell stuck with an upbeat assessment on the U.S. economy while downplaying the impact of global trade risks on the outlook for rate rises.

“The outlook is consistent with two further quarter point rate increases this year, likely in September and December,” said Barclays (LON:) economist Michael Gaspen.

“The main risk is that individuals, business, and financial markets have underestimated the desire of Trump to re-orient trade flows and that further steps to implement tariffs will lead to a reduction in confidence, a slowdown in hiring, and a correction in equity markets,” he added.

BofA Merrill Lynch’s latest fund manager survey showed a trade war remained the biggest risk cited by no less than 60 percent of respondents.

For now, U.S. companies seem to be profiting mightily from tax cuts as the earnings season shifts into high gear. Analysts now see second-quarter S&P 500 earnings growth of 21.2 percent, up from 20.7 percent on July 1.

Of the 39 companies in the index that have reported so far, 84.6 percent have come in ahead of Street expectations. The Dow () ended Tuesday up 0.22 percent, while the S&P 500 () gained 0.40 percent and the Nasdaq () 0.63 percent.

POUND IN PERIL

Powell’s support for more rate hikes sent two-year Treasury yields () to the highest in nearly a decade and lifted the dollar broadly.

Against a basket of currencies, the dollar was up at 95.045 (), after jumping 0.46 percent overnight. It also climbed to its highest since January against the yen at 113.07 .

The euro was stuck at $1.1655 (), after weakening 0.4 percent on Tuesday.

The pound suffered another bout of Brexit jitters after British Prime Minister Theresa May only just cleared the latest parliamentary hurdle to her leaving plans.

Bank of England Governor Mark Carney warned a no-deal Brexit would have “big” economic consequences and force a review of plans to raise interest rates.

Sterling was last huddled at $1.3104 , after sliding 0.9 percent overnight.

The rising U.S. dollar coupled with the prospect of higher U.S. interest rates spelt trouble for gold, which crashed through major chart support to hit a one-year low.

was 1.1 percent lower at $1,226.91 per ounce, having cratered at $1,225.58. The slightly less precious metal is down more than 5 percent for the year.

Oil prices also eased early on Wednesday, with Brent () off 53 cents at $71.63 a barrel. U.S. crude () was quoted down 31 cents at $67.77 a barrel.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.