* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Nikkei climbs 1.6% on hopes Fed will be open to easing
* Global bonds yields dive after Draghi flags stimulus
* Trump says to meet Xi at G20, trade talks to resume
* Commodities hold gains on reflation trade
By Wayne Cole
SYDNEY, June 19 (Reuters) - Asian shares hit five-week highs
on Wednesday as investors hoped the Federal Reserve would follow
the lead of the European Central Bank and open the door to
future rate cuts at its policy meeting later in the day.
Indeed, ECB President Mario Draghi's shock about-face on
easing fuelled talk of a worldwide wave of central bank
stimulus, firing up stocks, bonds and commodities. Adding to the cheer was news U.S. President Donald Trump
would meet with Chinese President Xi Jinping at the G20 summit
later this month, and that trade talks would restart after a
recent lull. But most analysts do not expect a decisive
breakthrough. "We expect no real change following the G20 sideline
meeting. (But) the fact that both sides are talking should at
least postpone thoughts of a further increase in tariffs, for a
while at least...," ING's Greater China economist Iris Pang said
in a note.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS climbed 1.5% to a five-week top. Shanghai blue
chips .CSI300 firmed 1.7% to a six-week peak.
Japan's Nikkei .N225 rose 1.6%, while Australia .AXJO
added 1% to its highest in 11 years. E-Mini futures for the S&P
500 ESc1 were a fraction firmer after a upbeat Wall Street
session.
The Dow .DJI ended Tuesday with gains of 1.35%, while the
S&P 500 .SPX rose 0.97% and the Nasdaq .IXIC 1.39%. The S&P
500 has surged 6% so far this month to be 1% from the all-time
high hit in early May. .N
All eyes are now upon the Fed which is scheduled to release
a statement at 1800 GMT on Wednesday, followed by a press
conference by Chairman Jerome Powell shortly after. Yet the heightened anticipation also creates risks the Fed
might fail to meet investors' high expectations.
"Market expectations for a dovish shift are nearly
universal, the only question seems to be the degree," said Blake
Gwinn, head of front-end rates at NatWest Markets.
Futures 0#FF: are almost fully priced for a quarter-point
easing in July and imply more than 60 basis points of cuts by
Christmas FEDWATCH .
"Markets will be looking for validation of this pricing," he
added. "We think this represents a fairly high bar for the Fed
to deliver a dovish surprise."
SUB-ZERO YIELDS
BofA Merrill Lynch's latest fund manager survey spoke
volumes about the sea change in sentiment.
Allocation to global equities dropped 32 points to a net 21%
underweight, the lowest since March 2009, while the bond
allocation hit the highest since September 2011.
Interest rate expectations collapsed, while concerns about a
trade war soared to be the top risk for investors, ahead of
monetary policy impotence, U.S. politics and a slower China.
The shift was clear in bond markets where German yields
DE10YT=RR hit record lows deep in negative territory, while
Japanese yields JP10YT=RR sank to the lowest since august 2016
at -0.145%.
Yields on the U.S. 10-year note US10YT=RR reached the
lowest since September 2017 at 2.016%, a world away from the
3.25% top touched in November last year.
The fallout in currencies was significantly less, in large
part because it was hard for one to gain when all the major
central banks were under pressure to ease.
The euro did pull back a bit after Draghi's comments, but at
$1.1192 EUR= was still well within the recent trading range of
$1.1106-$1.1347.
The dollar remained sidelined against the yen at 108.49
JPY= , and a shade firmer on a basket of currencies at 97.657
.DXY . The yuan CNY=CFXS picked up to 6.905 to the dollar on
the trade news.
In commodity markets, the rate-cut buzz kept gold near
14-month highs at $1,344.20 per ounce XAU= .
Michael Hsueh, an analyst at Deutsche, noted the decisively
dovish shift in central bank expectations was bullish for gold.
"This provides the desired backdrop - one in which investors
are less likely to be concerned about the opportunity cost of
holding a non-yielding asset, particularly versus the increasing
stock of negative-yielding debt," he said.
Reflation trades helped steady oil prices, as did hopes for
a thaw in Sino-U.S. tensions. O/R
Brent crude LCOc1 futures were off 6 cents at $62.06,
while U.S. crude CLc1 firmed 3 cents to $53.93 a barrel.
Confidence among Asian companies in the second quarter fell
to its lowest since the 2008-09 financial crisis, as the trade
war disrupts global supply chains and shows little sign of
easing soon, a Thomson Reuters/INSEAD survey found. ASIATOPCO/
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(Editing by Sam Holmes & Kim Coghill)