Dollar Climbs as Asian Stocks Advance Amid Earnings; Oil Falls 

• Speeches by Fed officials may affect outlook for U.S. rates
• Offshore yuan sinks toward all-time low after record outflows

The dollar strengthened versus most of its major peers, buoyed by the prospect of U.S. interest rates being raised at a time of record monetary stimulus in Europe and Japan. Most Asian stocks advanced and oil retreated.

The greenback rose toward a seven-month high versus the euro ahead of speeches by four Federal Reserve officials that may shed light on the outlook for borrowing costs. The yuan fell toward an all-time low in offshore trading after a report showed a pickup in China’s capital outflows. The MSCI Asia Pacific Index and U.S. equity index futures edged higher before a slew of major companies report earnings this week. Crude oil declined after Iraq balked at joining OPEC-led efforts to trim output.

“The euro is coming under pressure from monetary policy divergence as the ECB looks set to prolong its accommodative stance, while the Fed is probably paving the way for a December rate hike,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management. “There is a longer-term view of a sinking Europe versus a resilient U.S., which may also be behind the dollar’s general strength.”

After a third-quarter rally that added more than $3 trillion to the value of global equities, investors are studying central bankers’ rhetoric, economic reports and corporate profits to gauge the next move. Initial measures of October manufacturing activity in the U.S. and euro area are scheduled Monday, while the quarterly earnings season heats up this week with three of the world’s four biggest companies by market value due to announce results. China has all four of its largest listed banks reporting and updates are also coming from more than 350 members of Japan’s Topix index.

Currencies

The Bloomberg Dollar Spot Index gained 0.1 percent as of 1:43 p.m. Tokyo time, advancing for a third day before Fed Governor Jerome Powell and regional Fed presidents for New York, St. Louis and Chicago speak Monday. The chance of a rate hike this year increased by two percentage points last week to 68 percent in the futures market.

The pound was the biggest loser among major currencies, retreating 0.3 percent versus the greenback. The euro weakened for a fifth day, its longest losing streak in five months, after the European Central Bank signaled last week that its quantitative-easing program is likely to run past the currently scheduled end-date of March 2017.

The yuan fell 0.1 percent to a six-year low in Shanghai and was trading within 0.1 percent of its all-time low in the offshore market, which started in 2010. A net $44.7 billion worth of yuan payments left China in September, the most in data going back to 2010, the currency regulator reported Friday. Goldman Sachs Group Inc. estimated on Friday that China’s outflows totaled about $500 billion in the first nine months of this year.

“Market sentiment will be relatively negative in the near term as the offshore yuan tests record lows,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “In the long term, China will still see net funds exit.”

Stocks

About three shares advanced for every two that declined on the MSCI Asia Pacific Index, which gained 0.1 percent. Financial markets in New Zealand and Thailand are closed Monday for holidays, while Hyundai Motor Co. and Mumbai-based Axis Bank Ltd. are among regional companies reporting results.

“Earnings is the key metric for investors,” said Matthew Sherwood, head of investment strategy in Sydney at Perpetual Ltd., which manages about $21 billion. “Meanwhile, there are a number of important macro events which are holding the market back, including the U.S. election early next month and key Fed and ECB meetings in December.”

The Shanghai Composite Index rallied to a nine-month high amid speculation China will boost fiscal spending and follow through with pledges to overhaul the ownership structure of state-owned firms. Hong Kong’s Hang Seng Index rose 0.3 percent from Thursday’s close as trading resumed following a typhoon on Friday.

S&P 500 Index futures gained 0.1 percent before American companies including Visa Inc. and T-Mobile US Inc. announce quarterly earnings on Monday. About 80 percent of the 118 members of the S&P 500 that have reported so far beat expectations, though analysts still forecast a contraction in profits. Futures on the U.K.’s FTSE 100 Index added 0.3 percent, buoyed by the weakening pound.

Commodities

Crude oil fell 0.6 percent to $50.54 a barrel in New York, after advancing 0.8 percent on Friday. Iraq’s oil minister said Sunday that the nation should be exempted from production cuts proposed by the Organization of Petroleum Exporting Countries because it’s embroiled in a war with Islamic militants. The country is the group’s second-largest producer.

Industrial metals advanced across the board following a seven-day slide in the London Metal Exchange’s LMEX Index. Nickel led gains with a 1 percent increase, after sinking 5 percent last week.

Gold declined 0.2 percent, weighed down by the dollar’s strength. The net-long position in bullion futures and options fell to the lowest in more than seven months during the week ended Oct. 18, according to Commodity Futures Trading Commission data released Friday.

“Market participants will be watching for any data that could drive the FOMC to raise rates,” Jason Schenker, president of Prestige Economics LLC, said in a note received on Monday, referring to the policy-setting Federal Open Market Committee by its initials. “Near-term Fed-hawkish, dollar-bullish factors threaten to send gold prices lower.”

Bonds

Treasuries due in a decade were little changed and yielded 1.73 percent, after the rate sank six basis points last week. U.S. government debt handed investors a 0.6 percent loss in the month through Sunday, still the best performance in dollar terms among 26 major markets. U.K. notes ranked last with an 8.7 percent loss.

Government debt has declined around the world since the middle of the year amid speculation that the Fed is moving closer to raising interest rates. The Bank of Japan dropped a plan to push yields lower and switched to targeting bond levels, while ECB officials who asked not to be identified said the authority will probably gradually wind down its bond purchases.

“The Fed hiking the rate, and the less dovish monetary policy stance of the BOJ and the ECB, is hitting the performance of government bonds,” said Hiroki Shimazu, an economist and strategist at the Japanese unit of MCP Asset Management in Tokyo. “In the U.S., the outlook for a Fed hike this year offsets that damage because of a higher U.S. dollar. I’m bullish on the dollar.”

Source: Bloomberg

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