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Asia: Stocks join global slump as pound beats back US dollar gains

Wednesday, October 12, 2016 - 08:50
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[WELLINGTON] Equity declines extended into Asia, as concern over the potential for higher US interest rates melded with a weak start to the earnings season and Samsung Electronics Co's woes to unnerve investors. The US dollar gave up some gains after a two-day rally.

Japan's Topix index fell the most this month, while a third day of losses for Samsung weighed on Korean stocks, after the company ended production of its flagship smartphone amid battery fires. Sterling led gains among major peers, snapping a four-day selloff as the Australian and New Zealand dollars also rebounded, while emerging-market currencies fell. US crude traded below US$51 a barrel after retreating from a 15-month high on concern Russia isn't fully committed to an Opec deal to curb oil supply. Gold inched higher as traders looked ahead to the release of Federal Reserve meeting minutes Wednesday.

Investors will be scouring the September meeting record for evidence Fed chair Janet Yellen is under pressure from a hawkish group of officials to tighten monetary policy soon. Odds of the US central bank boosting borrowing costs by year-end have ticked up to 67 per cent, amid speculation the recent surge in oil prices will fuel inflation.

Meanwhile, the health of corporate America is coming into focus with disappointing results from Alcoa Inc getting the earnings season off to a lacklustre start. Mounting angst over how the UK will negotiate its exit from the European Union is also stoking jitters.

"Investors will focus on corporate earnings and the outlook provided by companies over the next six weeks as the Fed also prepares the market for what looks to be a likely interest-rate hike in December," James Woods, a global investment analyst in Sydney at Rivkin Securities, said in an e-mail.

Coupled with the looming US presidential election and Brexit concerns, "all of this provides multiple factors that have the ability to increase volatility over the coming months." As well as the Fed minutes, data on credit-card spending in Australia and factory output in Malaysia is due Wednesday. Markets in India are closed for a second session.

The MSCI Asia Pacific Index dropped 0.4 per cent as of 9:22am Tokyo time, with raw materials producers and property stocks driving declines. In Japan, the Topix lost 0.7 per cent, while the Nikkei 225 Stock Average was down 0.8 per cent.

Australia's S&P/ASX 200 Index dropped 0.8 per cent, with mining and energy stocks leading the retreat, while the S&P/NZX 50 Index in New Zealand fell 0.3 per cent, slipping to its weakest point since mid-July.

The Kospi index decreased 0.2 per cent in Seoul as Samsung - the gauge's biggest index and the fourth-largest on MSCI's Asia-Pacific measure - tumbled 2.9 per cent, bringing its three-day rout to 12 per cent.

Futures on the S&P 500 Index climbed 0.1 per cent to 2,136.25 after the underlying benchmark dropped 1.2 per cent to a one-month low on Tuesday. Contracts on Hong Kong's main indexes were down 0.5 per cent in most recent trading, as FTSE China A50 Index futures dropped 0.2 per cent.

The pound jumped 1.2 per cent to US$1.2268, rallying from near a three-decade low after UK Prime Minister Theresa May accepted that Parliament should be allowed to vote on her plan for taking Britain out of the European Union, but asked lawmakers to do it in a way that gives her space to negotiate.

"Given how aggressively short the pound the market was positioned, the prospect of UK parliament at least discussing the downside of a 'hard Brexit' has encouraged substantial profit-taking on those positions," said Sean Callow, a senior strategist at Westpac Banking Corp in Sydney.

The Aussie and the Kiwi strengthened 0.3 per cent, while currencies in South Korea, Malaysia and Thailand dropped at least 0.1 per cent.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, fell for the first time in three sessions, declining 0.1 per cent early Wednesday. The yen was little changed at 103.47 per US dollar.

West Texas Intermediate crude was steady at US$50.78 a barrel after slipping 1.1 per cent last session.

Russia's largest oil producer, Rosneft PJSC, said it it won't cut output, according to Reuters, after President Vladimir Putin said earlier this week that his nation would join the Organization of Petroleum Exporting Countries in freezing or cutting supplies.

Russia and the producers' group are due to meet in Istanbul Wednesday to discuss an output pact. Supply and demand will come back into balance earlier than expected if Opec's accord to trim output is implemented, the International Energy Agency said.

Gold for immediate delivery gained 0.1 per cent to US$1,253.54 an ounce following a 0.5 per cent drop last session, its ninth decline in 12 days.

BLOOMBERG