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Asia: Stocks extend pre-vote slide as crude oil trades below US$45

Friday, November 4, 2016 - 11:33

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[HONG KONG] A global stocks selloff extended into Asian trading as crude oil held near a one-month low and investors shunned riskier assets ahead of next week's US presidential election.

The MSCI Asia Pacific Index fell to a seven-week low after an eighth day of losses for the S&P 500 Index, the US benchmark's longest losing streak since 2008.

The pound traded near a four-week high after the Bank of England said it's no longer expecting to cut interest rates this year and a court ruled the UK must hold a vote in Parliament before starting the countdown to Brexit.

The yen, gold and sovereign bonds were all headed for their biggest weekly gains since at least July, spurred by demand for safe havens.

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Global stocks are at the tail end of their worst week since the run-up to Britain's June vote to leave the European Union, having taken a knock as opinion polls showed a dwindling lead for Democratic presidential candidate Hillary Clinton before America votes on Tuesday.

Gauges of expected volatility in equities and currencies have spiked, with Mrs Clinton - seen as the more predictable contender among investors - only just ahead of Republican rival Donald Trump in two surveys released Thursday.

"Markets are currently attempting to strike the right balance between the greater probability of a Clinton win and the possibility of a significant selloff on a Trump victory," Ric Spooner, chief market analyst in Sydney at CMC Markets, said in an e-mail.

"The more the market falls in advance of the election, the greater the potential for two-way volatility and a significant bounce if Clinton does get up."

Stocks

The MSCI Asia Pacific Index fell 0.8 per cent as of 11:10am Tokyo time, with all 10 industry groups losing ground. Japan's Topix index sank 1.7 per cent after being shut on Thursday for a holiday.

"Markets have reacted with cautiousness to political uncertainty," said Jasper Lawler, a London-based analyst at CMC Markets Plc.

"Investors are not panicking, but have been paralysed into inaction."

Futures on the S&P 500 Index rose 0.1 per cent ahead of monthly American payrolls data due Friday that may influence the outlook for interest rates. US shares fell in the last session as a New York Times/CBS poll found Mrs Clinton ahead 45 per cent to Mr Trump's 42 per cent among likely voters, down from a nine-point lead in the same poll in mid-October.

A Washington Post/ABC News tracking poll, meanwhile, found Mrs Clinton ahead within the margin of error, 47 per cent to 45 per cent, having lost ground to Mr Trump since last week.

Currencies

The Bloomberg Dollar Spot Index was little changed on the day and set for a 0.8 per cent weekly loss, having retreated as election concerns outweighed a pickup in speculation that the Federal Reserve will raise interest rates next month.

The central bank left policy unchanged at a review this week and signalled that a December rate hike was likely. The yen, euro and Swiss franc all strengthened more than one per cent this week.

"The dollar is showing clear signs that investors are worried about a Trump win," said Sean Callow, a senior strategist at Westpac Banking Corp in Sydney.

"The slide in the dollar against ultra-low-yielding currencies such as euro, yen and Swiss franc is evidence of a flight to safety, reversing a period of optimism where the dollar enjoyed the combination of stronger polling results for Clinton and not entirely coincidental positioning for a Fed hike in December."

Sterling was on track for a 2.3 per cent weekly bounce, its best performance in eight months. It jumped by the most since August on Thursday as BOE officials raised their forecasts for growth and inflation, and indicated concern that higher consumer prices may even warrant tightening policy at some point. The government said it would appeal a High Court ruling requiring it to hold a vote in Parliament before giving the EU official notice of the UK's planned exit.

New Zealand's dollar was the best performer in the Asia-Pacific region this week, gaining 2.2 per cent, the most since July, after strong jobs data damped the outlook for further policy easing by the central bank.

Commodities

Crude oil added 0.4 per cent to US$44.82 a barrel in New York. It has plunged 8 per cent this week this week, its worst performance since February, as the US reported a record jump in its stockpiles. In addition, members of the Organization of Petroleum Exporting Countries who are claiming exemption from an agreement to limit supplies helped boost the group's output to an all-time high last month.

Gold climbed 2.1 per cent this week, the most since July, and touched US$1,308.02 an ounce on Wednesday, the highest level in about a month. The turmoil triggered by a possible victory for Mr Trump could send the precious metal to US$1,400, according to Citigroup Inc and UBS Group AG.

Bonds

Sovereign bonds in developed countries handed investors a 1.5 per cent gain over the last four days, set for the best weekly return since July, a Bloomberg index shows. The yield on 10-year US Treasuries fell five basis points this week to 1.80 per cent, while the rate on similar-maturity debt in Japan declined 1-1/2 basis points to minus 0.065 per cent.

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