Asia stocks bounce, upbeat US data soothes nerves

Asian share markets crept cautiously higher early on Thursday after upbeat US economic data took the sting out of losses in European equities and lifted Wall Street to a firmer finish. MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.5 per cent, having shed 1 per cent onWednesday when fears over European instability swept markets. Australian stocks rose 0.7 per cent and South Korea put on 1.1 per cent. Dealers cautioned that fresh Brexit concerns could flare up at any time, a risk reflected in the parlous state of sterling. The British pound huddled at $1.2918 in early trade, having slid almost 3 percent in the previous two sessions to carve out a 31-year trough of $1.2898. The yen was well bid as a traditional safe harbour and held at 101.10 per US dollar, a major headache for the Bank of Japan (BOJ) as it crimps exports while suppressing much-needed inflation at home. It also kept Japanese shares on the defensive with the Nikkei flat in early trade. Still, it was notable that while bond markets have been signalling recession, equities had stayed fairly resilient. “The most optimistic interpretation is that markets believe a limited regional shock is going to result in a significantly easier stance for global monetary policy,” David Hensley, an economist at JPMorgan, said in a note. “At ground zero, the Bank of England has indicated it may soon cut rates. There is widespread speculation the BOJ and ECB will ease, a view we share.” More importantly, JPMorgan believes the Bank of England will revive its quantitative easing process while the UK government reverses course on austerity and loosens fiscal policy, which could be a green light to fiscal expansion globally.