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Global Markets: Asian shares edge higher, investors brace for U.S. elections

Reuters  |  TOKYO 

By and Tomo Uetake

(Reuters) - Asian shares inched up on Tuesday, supported by gains although momentum was tempered ahead of the U.S. midterm elections, the first major electoral test of Donald Trump's big tax cuts and hostile trade policies.

MSCI's broadest index of shares outside edged up 0.4 percent on a positive lead from Wall Street, but the gains were capped by falls in Chinese markets and regional

Japan's Nikkei average climbed 1.1 percent. The Shanghai Composite and blue-chip CSI 300 eased 0.2 percent and 0.6 percent, respectively. Both mainland benchmarks were able to claw back some of their earlier losses, however, on that China's leadership was open to dialogue with the to resolve trade disputes..

Shares in suppliers of Apple Inc, such as Taiwan's Hon Hai Precision Industry, fell after a report in the Nikkei newspaper that Apple had told its assemblers to halt plans for additional production lines dedicated to the XR. The report drove Apple shares 2.8 percent lower in U.S. trade.

On Wall Street, the gained 0.56 percent, with financials such as supported by strong earnings.

Taking the lead from U.S. and Asian peers, European futures pointed to a higher openings, with financial spreadbetters showing London's FTSE, Frankfurt's DAX, and Paris's CAC expected to rise between 0.2 and 0.4 percent.

Ahead of Tuesday's U.S. midterm elections, investors generally expect opposition Democrats to take over the of Representatives while Trump's is tipped to retain the

While political gridlock between the and could hinder Trump's pro-business agenda and raise concerns about political instability, some analysts say such an outcome may have already been priced in by investors.

The index, also known as the "black swan" index, hovered not far from its 2-1/2-year low hit Friday, indicating demand for options that provide protection remains tepid.

A higher skew typically indicates investors are buying more protection on heightened anxiety.

"Unlike the U.S. or the U.K.'s Brexit referendum, the upcoming U.S. (midterm) elections are not a binary event. So it's unlikely to send stocks significantly in one direction, apart from initial quick reactions," said Yasuo Sakuma, at

"So with this one, I don't think there is much need to hedge against the black swan risk."

If the Republicans retain their majority, global stocks are likely to rally on hopes of more tax cuts.

Trump said last month his administration planned to produce a resolution calling for a 10 percent tax cut for middle-income households.

"Everyone still remembers strong equity rallies after Trump was elected two years ago. So initially stock markets will gain," said Norihiro Fujito, at

"But further tax cuts would boost already large fiscal deficits and push the 10-year U.S. Treasuries yield above its October high almost instantly. Given rises in U.S. yields triggered a correction in equities last month, any rally in stocks is unlikely to last long," he added.

The 10-year U.S. Treasuries yield stood at 3.201 percent, maintaining most of its gains following Friday's strong U.S. jobs and wage data and staying not far from its 7 1/2-year peak of 3.261 percent hit on Oct. 9.

"Global equities have recovered after their fall in February, which was triggered by a rise in U.S. yields. But this time a recovery will likely be capped because now markets do not have the support they had back in February from tame inflation and the economic boost from Trump's tax cuts," said Shuji Shirota, at in

Many investors also expect Trump to continue to take a hard line on trade, regardless of the outcome of the elections.

"The impact of trade war will start to appear in U.S. economic data in coming months," Shirota added.

In markets, crude prices wobbled near multi-month lows after the allowed eight countries to temporarily continue buying from Iran, addressing supply concerns as formally imposed punitive sanctions on the Islamic republic. [O/R]

U.S. Intermediate (WTI) crude futures slipped 0.3 percent to $62.89 a barrel, after hitting a seven-month low of $62.52 on Monday.

Brent crude futures dropped 0.6 percent to $72.74 a barrel, near Friday's 2-1/2-month low of $72.16.

Both benchmarks have slid more than 15 percent since hitting four-year highs in early October.

Moves in major currencies were modest ahead of the U.S. election. The dollar rose 0.2 percent against the yen to 113.44 yen, its highest level in four weeks.

The euro traded at $1.1409, about one cent above this year's low of $1.1301 touched on Aug. 15.

(Reporting by and Tomo Uetake; Editing by and Eric Meijer)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, November 06 2018. 13:16 IST
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