Asian shares in sombre mood amid worry about US shutdown

Tokyo — Asian shares were subdued on Thursday as political uncertainty in the US and worry about weakening global economic growth left investors wary of riskier assets.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1%. It has gained 3.7% so far in 2019.

Australian shares were flat while Japan’s Nikkei was last down almost 0.5% after moving between positive and negative territory.

China’s blue-chip CSI300 shed 0.3% while Hong Kong’s Hang Seng Index gave up 0.2%.

On Wall Street, all three major US equity indices closed in positive territory, with the Dow Jones Industrial Average booking the largest gains on upbeat quarterly results from International Business Machines and other major firms. The S&P 500 gained 0.22%.

But gains were capped by uncertainty over the partial US government shutdown, slowing global economic growth and the yet-unresolved trade standoff between the US and China.

“Above all, [investors] are wary there’s a possibility that the economic slowdown will go on amid the uncertainty over the US-China trade tension,” said Harumi Taguchi, principal economist at IHS Markit.

“In such circumstances, the likelihood is becoming a little bigger that a situation remains where it’s hard to buy stocks and the yen is likely to strengthen.”

Japan’s manufacturing growth stalled in January as export orders fell at the fastest pace in two-and-a-half years, a preliminary business survey showed Thursday, offering the latest sign of slower growth hitting a major developed economy.

White House economic adviser Kevin Hassett said in a CNN interview the US economy could see zero growth in the first three months if the partial government shutdown lasts for the whole quarter.

On Wednesday, US President Donald Trump said that the US was doing well in trade talks with China, saying at a White House event that China “very much wants to make a deal”.

Analysts at Capital Economics warned that China’s economic slowdown looks set to be of a similar scale to that in 2015/16, though there are some significant differences so far, most notably less downward pressure on the yuan and no signs of major capital outflows.

“Against a backdrop of various concerns about other economies, weakness in China adds to reasons to expect a marked global slowdown,” they wrote in a note.

“Since China makes up 19% of the world economy, the slowdown this year compared to last will knock 0.2 percentage points off global growth.”

Central bank meetings

Investors’ focus also turned to the European Central Bank (ECB).

The ECB is widely expected to stay on hold at its first monetary policy meeting of 2019 that ends later on Thursday, but may acknowledge a sharp slowdown in growth, raising the prospect that any further policy normalisation could be delayed.

The ECB’s meeting will come a day after the Bank of Japan (BoJ) cut its inflation forecasts on Wednesday but maintained its massive stimulus programme, with Governor Haruhiko Kuroda warning of growing risks to the economy from trade protectionism and faltering global demand.

Data released on Wednesday had already shown Japan’s exports in December fell 3.8% from a year earlier, the most since October 2016.

Meanwhile, South Korea’s central bank left its benchmark policy rate steady on Thursday, reinforcing market bets that rates will remain unchanged for some time amid worsening trade conditions.

In currency markets, the dollar was last off 0.1% against the yen, changing hands at ¥109.47/$.

The dollar hit a year-to-date high of ¥110.00 against the Japanese currency after the BoJ kept its policy on hold the previous day.

The euro was basically flat at $1.1384. It has lost more than 1.5% after climbing to a three-month high of $1.1570 on January 10.

Sterling hit a fresh 11-week high against the dollar, rising to $1.3094, on bets that a no-deal Brexit can be avoided if parliament exerts greater control over the process.

The Australian dollar gave up early gains, last trading 0.1% lower at $0.7136. Solid Australian jobs data for December helped give the Aussie a boost early in the session.

The yield on benchmark 10-year treasury notes fell to 2.744% compared with its US close of 2.755% on Wednesday.

In commodity markets, oil prices extended losses from Wednesday as the EU sought to circumvent US trade sanctions against Iran, and on weaker US petrol prices.

US West Texas Intermediate (WTI) crude futures fell 31c, or 0.6%, to $52.31 a barrel, while Brent crude futures were last down 34c, or 0.6%, at $60.80.

Gold was slightly higher. Spot gold was traded at $1284.20/oz.

Reuters