Asian shares rose on Wednesday as investors hoped for progress on major tax reform in the United States, while the dollar hovered near one-month highs on growing expectations of a US interest rate increase in December.
The administration and Republicans in Congress are due to outline a tax plan on Wednesday. If passed, it would be the first significant legislative victory for US President Donald Trump since taking office in January.
It would also be a win for Wall Street as corporate tax cuts would potentially boost profits, while a tax amnesty on offshore cash holdings could fuel more buybacks and thus share values.
“We're now seeing some embryonic prospects of a tax reform in the United States which is a much bigger issue for the markets than the Federal Reserve,” said Ray Attrill, Sydney-based global head of forex strategy at National Australia Bank.
“Our view has been the market had moved from applying a Trump-premium from November-December to applying Trump-discount due to his inability to pass any major reforms. A meaningful tax reform could serve to reduce some of that discount.”
Analysts said the US tech space will be one to watch as it has mountains of cash that could be brought back for share buybacks and dividends.
Wall Street had ended mostly flat on Tuesday, but the tech sector gained 0.4 per cent, with Apple shares rising 1.7 per cent after four sessions of declines.
On Wednesday, MSCI's broadest index of Asia-Pacific shares outside Japan added 0.2 per cent, after falling for four straight days to a three-week trough. Japan's Nikkei was off 0.5 per cent, with some stocks trading ex-dividend, while Australia's main index eased 0.3 per cent.
Fed firms on December hike
In currencies, the dollar index last stood at 93.06 from 93.286 touched on Tuesday, the highest since August 31.
Markets were put on notice by Federal Reserve Chair Janet Yellen who used a Tuesday speech to warn it would be “imprudent" to keep policy on hold until inflation is back to 2 per cent. She said the US central bank “should also be wary of moving too gradually” on rates.
Atlanta Fed chair Raphael Bostin also talked up the prospect of a December rate hike.
US Treasury yields
The dollar also climbed on the yen to loiter near a 2-1/2 month high at 112.39, helped by rising US Treasury yields. The yield on 2-year Treasury notes, which rises with traders' expectations of higher Fed fund rates, touched 1.4590 per cent, a level not seen since October 2008.
The euro was near more than one-month lows at $1.1788 as investors faced weeks of political horse-trading in Germany before a new government could be formed.
Spot gold was a touch firmer, but still near one-month lows at $1,295.25, while copper edged 0.3 per cent higher from a six-week trough.
Crude oil
Crude oil prices popped up on Wednesday after the weekly API inventory report showed a 761,000 barrel build-up in crude inventories, which suggests downside risks to consensus estimate of a 2.52 million barrel build in an official report due later in the day, analysts said.
US crude climbed 26 cents to $52.14 per barrel, while Brent added 21 cents to $58.65.