Asian shares dip, drama in Japanese bond market

Sydney — Asian shares dipped on Monday on fear of further protectionist measures from the US, while the dollar declined against major currencies after US President Donald Trump criticised the Federal Reserve’s policy tightening.

Trump on Friday lamented the recent strength of the dollar, and accused the European Union and China of manipulating their currencies.

The dollar index has risen 2.4% so far this year, led largely by Fed rate rises, strong macroeconomic data and nervousness about a full-blown tariff war.

It was last down 0.2% at 94.27, the lowest in more than two weeks.

Trump’s remarks on Friday, coupled with new threats to slap duties on all US imports from China, triggered sell-offs in Wall Street and European stocks on Friday, despite good corporate earnings.

Asian stocks took Wall Street’s cue on Monday, with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 0.2%. Japan’s Nikkei stumbled 1.4%, while Australian shares and South Korea’s Kospi index fell 0.9% each.

Chinese shares also opened lower but quickly reversed their losses, with both the blue-chip index and Shanghai’s SSE composite up a touch.

“Although US equities edged lower on Friday and the yen strengthened, most cross-asset moves are supportive of APAC [Asia-Pacific] equities — particularly dollar weakness, strength in emerging-markets FX, and a dramatic bear steepening of global yield curves. Commodities are also mostly trading higher,” JPMorgan analysts said in a note to clients.

Trump’s comments against Fed rate hikes helped steepen the Treasury yield curve.

Also playing a role in the global uptick in yields was a Reuters report that the Bank of Japan was in unusually active discussions to modify its massive easing programme.

Sources told Reuters on Friday that the Bank of Japan was holding preliminary discussions on possible changes to its monetary policy, which include adjustments to interest-rate targets and stock-buying techniques, and a focus on ways to make the massive stimulus programme more sustainable.

That sent the 10-year benchmark Japanese government bond yield to a six-month peak on Monday.

It pulled back from this high after the central bank, to counter the spike in yields, announced a rarely used special bond-buying operation. It pledged to buy 10-year bonds at yield of 0.11%, the same level at which it has intervened in the past.

Still, the prospect that the central bank could adjust its current policy framework as early as its next meeting next week unsettled investors who have grown accustomed to the Bank of Japan’s stimulus.

The Reuters report and the dollar’s weakness together added to the yen’s strength, which was last up 0.5% at ¥110.91 to the dollar.

“Trade tensions remain a risk, but with an extended period until implementation (of the tariffs) and the next round of escalation, APAC equities are unlikely to respond much to Trump repeating threats already known,” JPMorgan said.

Investors are now looking ahead to an important meeting between Trump and European Commission president Jean-Claude Juncker.

“Trade tensions are likely to remain in the headlines as Juncker meets President Trump in Washington to discuss potential US tariffs on European autos,” asset manager Insight Investment, which is owned by BNY Mellon, said in a note.

“It’s probably a little too early for the indirect impact of the US-China trade issue to be showing up in the data.

“Nonetheless, the trade numbers that were released for Singapore and Japan were worse than expected.”

In Singapore, for example, exports rose 1.1% in the year to June compared with expectations of a 7.6% increase, while electronic exports slipped 7.9%.

Elsewhere, the euro climbed for a third straight day to a two-week top of $1.1746. It was last up 0.1% at $1.1741.

In commodities, oil prices were held back by concern over the US-China trade tensions and increased supply.

US crude was last off 16c at $68.1 a barrel after posting its third straight weekly loss. Brent eased 17c to $72.90.

Spot gold was barely changed at $1,231.8 an ounce.

Reuters

Source: businesslive.co.za