Asian Stocks Rise With Industrial Metals as Fed Bets Buoy Dollar 

• Nidec, SK Hynix rally after earnings; Apple reports Tuesday
• Kospi drops as South Korea tourism threatened by China spat

Asian stocks rose to a two-week high and industrial metals advanced, buoyed by a generally upbeat corporate earnings season and reports showing manufacturing is picking up in the U.S. and the euro area. The dollar strengthened versus the yen.

About three shares advanced for every two that fell on the MSCI Asia Pacific Index, with Nidec Corp. and SK Hynix Inc. rallying after profits beat estimates. South Korea’s Kospi index dropped and the won weakened amid concern the economy will be impacted by rising tensions with China. The Bloomberg Dollar Spot Index held near a seven-month high and the yuan touched an all-time low in offshore trading. Rising steel output and prices in China spurred gains in zinc and iron ore, while Japanese bonds advanced following an auction.

About 80 percent of S&P 500 Index members to have announced earnings so far exceeded analysts’ forecasts and that’s supporting investor sentiment as improving U.S. economic indicators bolster the case for the Federal Reserve to raise interest rates. American manufacturing is the strongest in a year and the euro area economy isexpanding at the fastest pace of 2016, data showed Monday. Apple Inc., the world’s biggest company, is due to release results on Tuesday and second-ranked Alphabet Inc. reports Thursday.

“With the U.S. economy looking solid and a rate hike by year-end looming in investors’ minds, the yen is weakening, and boosting expectations for a recovery in earnings in the second half of the year,” said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities Co. in Tokyo. Nidec’s earnings “reinforce the view that exporters’ earnings aren’t too bad.”

The outlook for U.S. interest rates may be influenced on Tuesday by American consumer confidence data and a speech by Fed Bank of Atlanta President Dennis Lockhart. European Central Bank President Mario Draghi is due to speak in Berlin and gauges of business sentiment in Germany and France are scheduled for release.

Stocks

The MSCI Asia Pacific Index added 0.3 percent as of 1:21 p.m. Tokyo time. Japan’s Topix index climbed to the highest since May and Australia’s S&P/ASX 200 Index rebounded from a one-week low.

Nidec, the world’s biggest maker of precision motors for hard-disk drives, surged more than 5 percent in Tokyo after reporting a 20 percent jump in quarterly net income. SK Hynix, a supplier of memory chips to Apple, gained the most in three weeks in Seoul following its results.

The Kospi slid 0.5 percent after the Korea Tourism Board said China is trying to suppress outbound tourism to South Korea. Hotel Shilla Co. sank 6 percent and cosmetics company AmorePacific Corp. tumbled about 9 percent as investors dumped shares of Korean companies that derive significant income from Chinese visitors, who accounted for about half of arrivals in September. Relations between the two nations have been strained by plans for a U.S. missile defense system to be deployed in South Korea.

Futures on the S&P 500 Index advanced 0.1 percent after the underlying benchmark climbed 0.5 percent on Monday. Analysts now predict third-quarter earnings for the index’s members will be flat year-on-year, better than projections for a 1.5 percent contraction a month ago.

Currencies

The Bloomberg Dollar Spot Index held close to a seven-month high after the chance of a Fed rate hike this year increased by three percentage points to 71 percent on Monday, according to pricing in federal funds futures contracts. The greenback advanced in the last session as a preliminary U.S. purchasing managers’ index rose and Fed Bank of Chicago President Charles Evans said it’s likely that interest rates will be hiked three times by the end of 2017. The pound and the yen fell 0.2 percent versus the greenback.

“Evans probably had a stronger impact than the PMI on the strength of the dollar,” said Kyosuke Suzuki, head of currency and money-market sales at Societe Generale SA in Tokyo. “There aren’t many senior Fed officials who have come out with specific numbers of expected rate increases. That’s providing a tailwind for the dollar.”

Canada’s dollar weakened 0.4 percent, erasing most of the last session’s rebound from a seven-month low, after central bank Governor Stephen Poloz clarified earlier remarks that had curbed speculation interest rates will be cut. Poloz said he wasn’t referring to monetary policy when he told lawmakers that the best plan was “to wait for the next 18 months or so.”

The yuan held near a six-year low in Shanghai and reached a record 6.7885 per dollar in the offshore market, which began trading in 2010. The onshore exchange rate has declined in all but one session this month, a sign the central bank has reduced support since the yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights on Oct. 1.

The won weakened 0.4 percent, weighed down by the spat with China and concern about exports. South Korea’s economy expanded 0.7 percent in the third quarter from the previous three months, when it gained 0.8 percent, data showed Tuesday. Net exports shaved 0.6 percentage point off gross domestic product.

Commodities

Zinc, used to galvanize steel, jumped as much as 4.8 percent to a five-year high on the Shanghai Futures Exchange and hot-rolled steel coil climbed to levels last seen in April. Iron ore surged to a two-month high on the Dalian Commodity Exchange.

“On the demand side, steel is a leading indicator,” said Helen Lau, an analyst at Argonaut Securities Asia Ltd. in Hong Kong. “While the property market is subject to cooling measures, the infrastructure side in China is still good and that supports overall demand.”

Crude oil slipped 0.1 percent to $50.48 a barrel in New York, after declining 0.7 percent on Monday after Iraq said it should be exempted from planned production cuts being orchestrated by the Organization of Petroleum Exporting Countries. The head of OPEC is set to visit Baghdad on Tuesday for talks aimed at resolving the matter.

Bonds

The yield on U.S. Treasuries due in a decade was steady at 1.76 percent, after climbing three basis points in the last session. It will have to rise if the Fed’s Evans proves correct with this prediction for three interest-rate increases by end-2017, according to Kim Youngsung, head of overseas investment at South Korea’s Government Employees Pension Service in Seoul.

After one increase “for sure” in December, two more in 2017 will send the 10-year yield past 2.5 percent, Kim said. Economists predict the benchmark will end next year at 2.14 percent, according to a Bloomberg survey with the most recent forecasts given the heaviest weightings.

Japan’s 20-year government bonds rose for a fourth day after demand strengthened at an auction of the securities on Tuesday. The yield fell to a three-week low of 0.36 percent.

Source: Bloomberg

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