Thursday 04.00 BST. Asian stocks retreated on Thursday, following a weak lead from Wall Street as investors across the region wound down for a long weekend.

Looming meetings from the Federal Reserve and Bank of Japan also kept investors on the sidelines amid uncertainty over the outlook for global monetary policy.


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Japan’s broad Topix benchmark was down 1.1 per cent and the Nikkei 225 was off 1.2 per cent as exporters took a hit from the stronger yen. The Japanese currency was 0.3 per cent firmer at ¥‎102.12 per dollar in Thursday trading.

The greenback retreated 0.3 per cent overnight to 95.294 on the dollar index — a measure of the US currency against a basket of peers — but was flat on Thursday.

In the wake of a soft batch of US economic data, contrasting commentary from Federeral Reserve policymakers over the past week has seen markets flip-flop. Overall, it has prompted traders to scale back bets that the central bank will lift rates next week. The chance of a 25 basis point increase on September 21 has fallen to 20 per cent compared with 22 per cent a week ago, according to pricing tracked by Bloomberg.

“There are concerns that the Fed will soon be hiking interest rates, and that other central banks — such as the ECB and BoJ — might be reaching the limits of asset purchase programmes,” said Nick Kounis, head of macro research at ABN Amro.

“While these concerns are to some extent justified, our sense is that policy will remain relatively accommodative. Although the Fed will probably increase rates in December, we think that further tightening will be exceedingly slow.”

Gold, which is sensitive to monetary policy expectations, was up 0.1 per cent at $1,323.89 an ounce on Thursday. Two-year US Treasuries, which are sensitive to US rate expectations, were slightly weaker in Asia with yields (which move in the opposite direction to price) up 0.6 basis points to 0.7641 per cent.

Hong Kong’s Hang Seng was up 0.4 per cent, while Singapore’s Straits Times index fell 0.5 per cent. The pair will be closed on Friday for the mid-autumn festival public holiday, joining bourses in mainland China, Taiwan and South Korea that have already begun their long weekends.

Australia’s S&P/ASX 200 was up 0.2 per cent, while the currency was trading flat at $0.7467 in the wake of newly released employment data.

The currency was at one point down by as much as 0.3 per cent against the US dollar after data showed the Australian economy shed 3,900 jobs in August, compared with consensus expectations of a 15,000 gain. There were some encouraging signs that more full-time jobs — typically better-paid and higher-quality — were added, and the unemployment rate fell to a three-year low of 5.6 per cent.

But not all analysts were not convinced. “While the key leading indicators of the labour market suggest the labour market will do reasonably well, we think today’s drop in the jobless rate is overstating the strength. As such, we view recent momentum as unlikely to be sufficient to lift core inflation any time soon,” said Tom Kennedy at JPMorgan.

Australian government bonds continued to sell-off, facing a sixth consecutive day of declines and the longest losing streak in two months, with yields on the benchmark 10-year note up 1 basis point to 2.107 per cent.

Japanese government bonds continued to rally, eyeing a third day of gains as the yield on the 10-year JGB fell 0.5 basis points to minus 0.026 per cent.

The New Zealand dollar lost 0.1 per cent against its US counterpart following the release of solid GDP data for the June quarter. Construction underpinned a quarter-on-quarter expansion of 0.9 per cent, which was flat on the upwardly revised previous quarter, but fell short of economists’ expectations.

New Zealand’s benchmark S&P/NZX 50 was down one-third of one per cent on Thursday and was facing its sixth-straight day of declines.

Oil prices dropped almost 3 per cent overnight despite data from the Energy Information Administration showing that US crude inventories fell last week. But the market was in recovery mode on Thursday, with Brent crude, the international benchmark, up 0.5 per cent at $46.08 a barrel, and West Texas Intermediate 0.2 per cent higher at $43.66.

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