Asian shares slide,falling Oil prices, Yen Rises on Risk Aversion,Fed Talk
Asian shares and other riskier assets skidded on Tuesday, pressured by slumping crude oil prices and mixed messages from Federal Reserve policymakers on the outlook for U.S. interest rate rises.
Oil prices continued to drop after shedding more than 2 percent overnight, as investors doubted that oil producing countries would freeze output to address a global glut.
Yen gains broadly on risk aversion. Boston Fed president Eric Rosengren said that market pricing of Fed’s hike was “too pessimistic”. And, “if the incoming data continue to show a moderate recovery — as I expect they will — I believe it will likely be appropriate to resume the path of gradual tightening sooner than is implied by financial-market futures.”
Gold increased 0.8 percent in the spot market, while copper added 0.3 percent.
Brent lost 0.4 percent to $37.54 a barrel after losing 2.5 percent on Monday. U.S. crude lost nearly 3 percent overnight, and on Tuesday was down about 0.5 percent at $35.53.
European shares are seen falling, with spread-betters expecting Germany’s DAX to fall as much as 1.0 percent and Britain’s FTSE 0.5 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.3 percent. Japan’s Nikkei stock index dropped 2.4 percent to an eight-week closing low, as the perceived safe-haven yen rallied.
Investors are concerned that Japanese companies are losing their ‘weak-yen appeal’,” said Kazuhiro Takahashi, equity strategist at Daiwa Securities.
“Many people are thinking it would be difficult for exporters to forecast on-year gains in their earnings for this fiscal year.”
There’s a big divergence in opinion right now over whether this rally is a head fake or not,” Craig Sterling, head of U.S. equity research at Pioneer Investments in Boston, said by phone. “Stocks have gone up on not a lot of volume and we’re kind of at an inflection point right now.”
Commodity-related and industrial shares helped drag down U.S. stock indexes overnight, and U.S. economic data suggested that economic growth remained sluggish in the first quarter.
New orders for manufactured goods dropped in February, as they have in 14 of the past 19 months, while business spending on capital goods was much weaker than initially believed.
Minneapolis Fed President Neel Kashkari said on Monday he is “comfortable” with the current stance of U.S. monetary policy, and expects “moderate” economic growth ahead.
By contrast, Bank of Japan Governor Haruhiko Kuroda on Tuesday stressed his readiness to expand monetary policy further, saying that market moves would be among key factors the central bank will look at in deciding when and how it will next expand stimulus. But his comments did little to stem the yen’s ascent.
The dollar shed about 0.5 percent to 110.84 yen. A slide below 110.67 yen would take the currency to its lowest since October 2014. The euro gave up about 0.4 percent to 126.33 yen.
Against the dollar, the euro stood little changed at $1.1380, within sight of Thursday’s 5-1/2 month peak of $1.1438.
On the other hand, the Reserve Bank of India cut its main interest rate by 0.25 percentage point to 6.5 percent as expected, its first rate reduction since September.
The reaction in local markets has been so far limited, with the Indian rupee little changed at 66.175 per dollar to the dollar, just below a three-month high of 66.07 hit earlier on Tuesday.
The benchmark BSE share index were down 0.5 percent.
The yield on 10-year bunds dropped more than 3 basis points to 0.094 percent, the lowest level since April 2015. Rates on similar-maturity U.S. Treasuries declined 3 basis points to 1.73 percent. It will be “appropriate” for the Fed to raise interest rates two more times this year and then follow a “very gradual” path of rate increases thereafter, Fed Bank of Chicago President Charles Evans said in a speech in Hong Kong on Tuesday.
In Japan, demand at a sale of 10-year bonds climbed to the highest since August 2014, pushing auction yields to a record low. The Finance Ministry’s offering of 2.4 trillion yen ($21.6 billion) of the debt with a 0.1 percent coupon had a unprecedented yield of minus 0.069 percent.