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Asian shares rise as Fed strikes dovish tone

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MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.45%, Nikkei gained 0.28%, Taiwan rose 0.54% and Singapore added 0.77%

Shares in Asia rose and the dollar dropped to two-week lows on Monday after U.S. Federal Reserve Chairman Jerome Powell struck a dovish tone at the central bank’s symposium, although investors remained cautious about prospects in China.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.45%, and Japan’s Nikkei gained 0.28%.

Chinese blue chips bucked the broader Asian trend, dropping 0.20% and the Hong Kong benchmark fluctuated either side of flat.

Smaller markets saw larger gains with Taiwan 0.54% higher and Singapore up 0.77%.

Powell really soothed the market’s concerns for now, as the Fed is extremely good at doing, and money is going back to the U.S., not that it ever really left, said Daniel Lam, senior cross-asset strategist, at Standard Chartered Wealth Management.

Lam said there were fewer uncertainties in the United States than in Asia and specifically China, though he added that any further rotation away from Asia would be more incremental and less dramatic than we saw in July and early August because a lot of people have already left.

Chinese companies have recently been roiled by a series of regulatory clampdowns, spooking some investors and pushing the Hong Kong benchmark to 2021 lows earlier this month.

There are also worries that Chinese growth is starting to slow and so traders are closely watching purchasing manager surveys for manufacturing and services, which are both due this week.

U.S. stock futures, the S&P 500 e-minis, rose 0.02%.

Investors had been waiting to see whether Powell would give a clear indication of his views on the timing of the central bank’s tapering of asset purchases or hiking interest rates, which could drag on equity markets.

However, Powell offered no indication on cutting asset purchases beyond saying it could be this year.

This dovish tone caused U.S. benchmark Treasury yields and the dollar to drop on Friday, with both trends extending into Monday morning trade in Asia.

The yield on benchmark 10-year Treasury notes was 1.3070% compared with its U.S. close of 1.312%, and last week’s high of 1.375%. The dollar index was at a two week low.

There’s a general sense of a bit of a consolidation after Friday’s news, said Rodrigo Catril, senior FX strategist at National Bank of Australia. The dollar is technically underperforming on the day, but there’s a lot of data coming out this week from China and the U.S. with nonfarm payrolls on Friday.

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