Global Stocks Extend Declines as
Japan stocks, yen fluctuate after GDP growth beats estimates
Greenback buoyed by Fed rate-hike speculation;
oil above $48
The dollar and Treasury yields are firmer, while stocks and gold are on the back foot, as investors review the timing for interest rate rises by the Federal Reserve.
Japanese equities and the yen fluctuated as investors weighed the need for stimulus after economic growth beat estimates.
A gauge of the greenback’s strength climbed to its highest since March, while the yen traded near a three-week low.
The yen strengthened a bit because growth was stronger than many had expected,” said Ayako Sera, market strategist at Sumitomo Trust and Banking. “But looking at the details, there were still some concerning areas, including capital spending.”
South Africa’s rand and South Korea’s won sank to their weakest levels in two months, leading declines in emerging markets.
Crude oil traded above $48 a barrel before data that’s forecast to show a drop in U.S. stockpiles, while copper and gold fell for the first time in four days.
Weighing on broader market sentiment is the S&P 500’s 0.9 per cent fall to 2,047 on Tuesday — with futures suggesting Wall Street’s stock barometer will hold that level at Wednesday’s opening bell.
Traders point to uncertainty over Fed policy as the main cause of the stock market’s latest wobble.
Stronger than expected US inflation data for April were accompanied by comments from Dennis Lockhart, president of the Atlanta Federal Reserve, that markets were underestimating the possibility of a rate rise as early as June. Minutes from the Fed’s most recent gathering are due to published at 1900 BST.
The possibility that next month’s Fed policy-setting meeting remains “live” to the prospect of a shift in borrowing costs has caused ripples across asset classes as traders adjust what were becoming increasingly dovish positioning.
But now two-year US government bond yields, which move inversely to the bond price, are up another one basis point to 0.84 per cent, their highest in three weeks.
The more inflation-sensitive 10-year Treasury is up 1bp to 1.77 per cent, its yield suppressed by foreign buyers who are offered just 0.15 per cent in German Bunds, or minus 0.10 per cent in equivalent-maturity Japanese paper as those two countries’ monetary policies remain ultra-accommodative.
The dollar is benefiting from this rate differential, gaining ground against both its developed and emerging economy peers.
The euro is down 0.5 per cent to $1.1260 and sterling is off 0.2 per cent to $1.4437, helping the dollar index gain 0.4 per cent to 94.91, challenging its highs for the month.
Rising bond yields and a firmer buck tend to hurt gold and so the bullion is shedding $9 to $1,271 an ounce. Dollar-denominated base metals are also under pressure — copper is losing 1.3 per cent to $4,582 a tonne — and lower raw material prices alongside a possible steeper Fed tightening trajectory are hurting so-called commodity currencies.
The Aussie, kiwi and Canadian dollars are all weaker versus the greenback while the Malaysian ringgit and Indonesian rupiah are leading the pullback among EM currencies.
Japan’s economy grew at an annualised pace of 1.7 per cent in the first quarter, easily surpassing expectations of a 0.3 per cent rise and reversing from a contraction in the December quarter. There were encouraging signs in the form of solid consumption and lower oil prices also provided a boost, but business investment remained weak.
Analysts at DBS forecast Japan’s economy to grow by 0.5 per cent during the course of 2016, a stagnant pace that could provide a reason for the government to undertake fiscal stimulus.
Hong Kong’s Hang Seng index was down 1.6 per cent, while Australia’s S&P/ASX 200 was 0.7 per cent lower. In mainland China the Shanghai Composite fell 1.3 per cent even though data showed a recovery in Chinese house prices remained on track, with prices rising month on month in 65 of 70 large cities in April.