Asian shares rose to a seven-month peak on Wednesday and oil prices hovered near their highest since November after a jump in U.S. consumer confidence reinforced a view that the global economy has bottomed, even if recovery appears fragile.
Major European stocks were expected to open up as much as 0.5% higher following gains in Asian and U.S. markets, according to financial bookmakers, with traders looking to U.S. existing home sales data later in the day for further signs on whether the worst of the downturn is over.
Hopes of recovery offset rising geopolitical tensions as North Korea threatened to attack the South after Seoul joined a U.S.-led effort to check vessels suspected of carrying equipment for weapons of mass destruction.
South Korean stocks fell 0.7% and the won came under pressure after the threat from the North, which is facing international sanctions for conducting a nuclear test on Monday.
Fears that the United States could lose its top-notch AAA credit rating, which rattled markets last week, also appeared to take a back seat to optimism about global recovery.
“We're seeing most risk proxies firmer,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney.
“It's not to suggest that there's an ‘onward and upwards’ recovery in the U.S. and the globe, but it is consistent with the idea that the worst is behind us.”
The MSCI index of Asian stocks outside Japan gained close to 2.3% by early afternoon in Asia after earlier hitting its highest intraday level since last October, when markets were tumbling in the wake of the collapse of Lehman Brothers.
Japan's Nikkei average rose 1.4%, breaking above its 200-day moving average, with shares of exporters surging on the U.S. consumer confidence report.
But gains were capped by concern that bankruptcy is drawing near for ailing General Motors after a deadline passed for its bondholders to exchange some of the debt into stakes in the company.
Elsewhere in Asia, shares in Hong Kong jumped 4.7% and Taiwan rose 3.1%
Energy, consumer discretionary and financial stocks led gains on Wednesday, as they have since the beginning of the 49% rally in the MSCI Asia Pacific ex-Japan index since early March.
But these sectors are also getting more expensive; valuations on a 12-month forward price-to-earnings basis are at the highest since mid-2008.
U.S. consumer confidence soared in May to its highest level in eight months, even though house prices fell at a record pace in the first quarter, data showed on Tuesday.
The consumer data pushed U.S. stocks by more than 2%.
Consumer spending accounts for roughly two-thirds of the U.S. economy, so is a positive signal for global trade including for Asian exporters. However, consumer confidence indexes have low correlations with actual spending.
Japanese also exports rose in April for the second month running, data showed on Wednesday, providing another sign that the slump in global trade may have bottomed.
Still, Germany reported earlier this week a record contraction in its economy in the first quarter.
Concerns about how the U.S. government will ramp up borrowing to feed a widening budget deficit have also weighed on markets since last week.
However, the sale of $40 billion in two-year U.S. Treasury notes on Tuesday saw strong interest, especially from overseas, suggesting there are willing buyers of U.S. debt.
Still, traders said longer maturities might not be met by such strong demand. Total issuance for the week is slated to total $101 billion, matching a record set earlier this year. Two more offerings this week will be for five-year and seven-year debt.
The renewed risk appetite was evident in currency markets.
The yen, seen as a safe haven against risk, fell against major currencies. The dollar rose 0.5% to 95.35 yen.
The euro gained 0.2% to 133.02 yen while sterling, which has risen steadily against the yen since January, touched its strongest level since early November at 152.28 yen.
The Australian dollar hit an eight-month high against the U.S. currency as higher-yielding currencies, which usually benefit when risk appetite increases, firmed.
Australia's currency jumped more than 8% this month, supported by both a broad retreat in the U.S. dollar and a rebound in commodity prices.
Crude prices hovered near a six-month above $62 a barrel, supported by the U.S. consumer confidence data and comments from Saudi Arabia's oil minister that oil prices would hit $75 a barrel during the third and fourth quarters of this year.
Oil has nearly doubled from its lows in December below $33 a barrel. OPEC ministers meet in Vienna on Thursday to consider production policy but are expected to leave output unchanged. (Reuters)