Euro stabilizes after volatile session | Short-dated US Treasury yields rise on Fed view | Gold falls as demand for safe-haven assets dim.
Asian stocks posted their biggest rise in two weeks on Tuesday and the euro steadied as investors judged the sell-off after Italy's referendum was overdone, with robust US economic data also helping sentiment. MSCI's broadest index of Asia-Pacific shares outside Japan bounced 0.8%, its biggest daily rise since November 22, breaking two days of falls. Korea climbed 1.2% while Japan rose 0.8%.
"Global risk sentiment roared back after falling prey to the initial Renzi fallout and whatever negatives Italy creates for the Eurozone, Monday was not the time for a euro implosion," said Stephen Innes, senior trader at online FX platform, OANDA.
Wall Street rose on Monday, with the Dow Jones industrials setting fresh record highs following a services sector report that showed further strength in the domestic economy. Services sector activity hit a one-year high in November, with a surge in production boosting hiring, following on the heels of Friday's employment report that showed strong job gains last month. The services news pushed short-dated Treasury yields higher with two-year benchmark yields stabilising near the 1.13% level, not far from a six-year high of 1.17% tested in late November.
Interest rates futures implied traders saw a 93% chance the Fed would raise rates by a quarter point to 0.50-0.75% next week, CME Group's FedWatch showed. Chinese markets were in particular focus after benchmark indices stumbled on Monday, led by large-caps, after the top securities regulator warned against "barbaric" share acquisitions. Hong Kong stocks rose. "The Hong Kong market is being squeezed higher on short covering but there is limited upside with traders remaining cautious ahead of China trade data on Thursday," said Andrew Sullivan, managing director, sales trading at Haitong International Securities Group in Hong Kong.
In foreign exchange markets, the euro steadied after bouncing back from a near 21-month low set the previous day after Italian Prime Minister Matteo Renzi was defeated in a referendum on constitutional reform.
The euro eased 0.1% to $1.0751 but held on to the bulk of the gains from Monday, when it ended up gaining about 1% on the day, bouncing from a low of $1.0505 set after Renzi said he would resign.
The dollar held near a three-week low against a basket of six major currencies as investors viewed recent strength as overdone. Oil fell, with US crude down more than 1% at $51.26 per barrel as investors judged a 16% rally since the OPEC agreement last Wednesday to curb production was getting stale. Still, higher stocks and firmer short-dated Treasury yields projected a more optimistic backdrop for risk appetite than Monday when Asian markets plunged as investors worried the euro-zone may be heading for a fresh crisis after the Italian vote.
The lift in sentiment pushed the prices of relative safe-haven assets such as gold and Japanese yen lower. Spot gold fell by as much as 1.6% to its lowest since early February at $1,157 an ounce, before bouncing somewhat.
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