Asian shares rebounded on Thursday and the dollar firmed in a remarkable snapback from the shock of Republican Donald Trump's presidential victory, though the speed of the reversal left some market watchers scratching their heads.
MSCI's broadest index of Asia-Pacific shares outside Japan bounced 1.8 per cent after slumping 2.4 per cent on Wednesday as global markets plunged on signs that Trump was sweeping to power.
The Nikkei duly recouped all of Wednesday's 5 per cent loss and more to trade up roughly 6 per cent as the yen weakened following the previous session's surge.
Despite the sharp election recoil in global markets initially, US investors opted to focus instead on Trump's key policy priorities, which include generous tax cuts and higher infrastructure and defence spending, along with deregulation for banks.
“Investors are puzzled with their emotional investment decisions. They were risk averse yesterday, then after seeing that Americans were optimistic and chasing the market higher, they wasted no time reversing their positions,” said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.
“Some of the investors must be thinking that they shouldn't have sold after all.”
Australian stocks soared 2.8 per cent in the largest daily gain since late 2011 and Shanghai rose 1.1 per cent.
“An astonishing turnaround in risk appetite pushed equities and Treasury yields higher,” said Imre Speizer, an economist at Westpac.
“Markets appeared to reassess the economic outlook under Trump, towards one of higher growth and higher inflation.”
He noted that a key market barometer of 10-year inflation expectations had jumped to a 16-month peak of 1.87 per cent.
Amid expectations of higher spending and inflation under Trump, yields on US Treasury 10-year notes reversed an initial plunge to 1.716 per cent and bolted to 2.09 per cent overnight, the highest since January.
The net rise of 21 basis points was the largest daily increase since July 2013.
The dollar carved out a staggering range, rebounding along with the surge in US yields from as low as 101.19 yen all the way to 105.96 early on Thursday. It last stood at 105.33.
Helping boost the dollar, investors again revised the outlook for U.S. interest rates in the wake of Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 per cent to as high as 80 per cent.
The dollar index against major currencies recovered from a trough of 95.885 plumbed on Wednesday to around 98.519.
Having stretched as high as $1.1300 in the initial panic over Trump's win, the euro then slumped all the way to $1.0906 overnight - a move of roughly four cents.
The longer-term outlook for the dollar's weakening peers remained unclear, however.
“We expect a Trump Treasury to elevate the importance of the bilateral trade surplus with the U.S. in identifying currency manipulators and intensify pressure on trade partners to allow currencies to appreciate,” Tim Condon, an Singapore-based economist at ING, said in a report.
Meanwhile, the action was no less noteworthy on Wall Street, where S&P 500 futures had shed 5 percent at one stage in Asia on Wednesday only to stand 1.1 percent higher late in the day.
The Dow jumped 1.4 per cent, while the S&P 500 and the Nasdaq both added 1.11 per cent. Trading volume was the highest since June, when Britain voted to abandon the European Union.
The CBOE Volatility index, a gauge of investor anxiety, fell 23 percent and was on track for its biggest daily drop since late June.
S&P futures were little changed in Asian trade on Thursday.
ASIA WARY ON TRADE, ALLIANCES
Ratings agency S&P Global later affirmed the AA+ rating of the United States, but noted uncertainty over the future path of government debt would prevent any upgrade.
There were also lingering concerns about whether Trump would follow through with threatened punitive tariffs on Chinese and Mexican exports, potentially triggering a global trade war.
Among Asia's trade-reliant economies, China and South Korea are particularly exposed to any hostile U.S. measures as they run large trade surpluses with the United States, Credit Suisse said in a research note.
Mexico's peso trimmed losses but was still within reach of a life-time low seen overnight.
“Trump's protectionist policies may prove another big step back in the gradual unwinding of goods globalisation that has defined the past 30 years,” wrote analysts at Nomura.
“Another important factor is that a Trump presidency would bring with it uncertainty that could undermine the Pax Americana, with all the benefits this has brought to the world in general and, perhaps, Asia in particular since 1945.”
For now, investors seemed willing to give the president-elect the benefit of the doubt, as witnessed by a broad advance in bulk commodity prices.
Copper rose to a near 16-month high on expectations that a Trump presidency could unleash a flood of infrastructure spending and force China to keep on an easy monetary track.
Iron ore surged 4.7 percent to its highest since January 2015.
Pulled down by a rise in US inventories, crude oil trimmed gains made overnight on the post-U.S. election surge in global markets.
US crude dipped 0.2 per cent to $45.16 a barrel after rising 0.6 per cent overnight. Brent crude was flat at $46.38 a barrel.
Safe-haven gold pulled back sharply to $1,287.00 an ounce after rising to as high as $1,337.40 on Wednesday.