Asia: Stocks slide with US futures as bonds gain on growth woes

[WELLINGTON] Asian stocks stocks dropped with US equity-index futures and emerging-market currencies as concern that global economic growth spurred investors to sell riskier assets and seek the relative safety of government debt.

Australian shares headed for their biggest retreat in almost a month, dragging the MSCI Asia Pacific excluding Japan Index lower. Standard & Poor's 500 Index contracts signaled a third straight day of losses after Fed members attempted to talk up prospects for an interest-rate increase over the weekend. Copper declined with New Zealand's dollar and emerging-market currencies, while Australian bonds rose a second day. Japanese markets are closed through Wednesday.

"The key thing is that the markets are looking for global growth and we're not seeing any," Raymond Chan, the chief investment officer for Asia Pacific at Allianz Global Investors, which oversees about US$344 billion, told Bloomberg TV in Hong Kong.

"It's the US and China driving sentiment - it's pretty bad. I'd prefer if there was a US rate rise once and for all, and that would clear away all the uncertainty. Volatility is going to continue to exist for a long while."

Three Fed policy makers argued over the weekend that higher borrowing costs are still warranted in 2015, commenting after the central bank decided to stand pat amid global financial- market volatility and concern about the impacts of an apparent economic slowdown in China. Still, global anxiety levels got a boost Friday after a European central banker said the Fed remaining on hold vindicated their view of the global economy and indicated stimulus could be boosted if needed.

The MSCI Asia Pacific excluding Japan Index sank 1.9 per cent by 9.53am in Hong Kong, as S&P 500 futures dropped 0.5 per cent. The S&P/ASX 200 Index plunged 2.7 per cent in Sydney, while the Hang Seng Index retreated 1 percent and Seoul's Kospi gauge slid 1.5 per cent.

The kiwi slipped 0.2 per cent after consumer confidence dropped to a three-year low, while the Korean won and Malaysian ringgit weakened at least 0.9 per cent.

Yields on Australian and New Zealand 10-year debt dropped by at least two basis points. US oil was at US$44.84 a barrel, while copper fell 0.3 per cent in London, extending Friday's 2.5 per cent slump.

Futures now give just a 20 per cent chance of a rate increase at the Fed's October meeting, and 46 per cent probability at December. San Francisco Fed President John Williams, a policy centrist who has worked closely with Chair Janet Yellen, said Sunday that "in my mind, it was a close call" to delay a rate rise at last week's Federal Open Market Committee meeting.

Uncertainty over the global outlook and the Fed's next move has stoked equity volatility, with the Chicago Board Options Exchange SPX Volatility Index, a measure of expected swings in US stocks, climbing 5.4 per cent on Friday.

STOCKS

Just eight of the 200 stocks on Australia's main index advanced, the fewest since Aug 24. Banks and raw-materials producers were the biggest drags amid concern that weak global demand will weigh on exports.

Hong Kong's Hang Seng Index was lower after capping its first back-to-back weekly gains since May.

The Hang Seng China Enterprises Index, a gauge of mainland stocks listed in the city, sank 1.5 per cent after finishing Friday at its highest since Aug 21.

The Shanghai Composite Index swung between gains and losses. China Railway Group Ltd. jumped 6.8 per cent after it said it will inject industrial manufacturing units into China Railway Erju in exchange for assets.

BONDS

Yields on 10-year Australian notes fell four basis points, or 0.04 percentage point, to 2.73 per cent in a second day of declines. Rates on similar maturity New Zealand debt slipped three basis point to 3.30 per cent.

Ten-year Treasury yields dropped by six basis points last week to 2.14 per cent. US bonds won't resume trading on Monday until London opens because of the holiday in Japan.

"We expect to remain bearish," Stewart Richardson, chief investment officer at RMG Wealth Management LLP in London, said by e-mail. "The Fed seems to be coming in for more criticism from all sides, and with markets falling after a dovish meeting, we believe that their credibility is now being openly questioned. We continue to believe that long-term investors should be holding a lot of cash at this point in the cycle."

COMMODITIES

Major US indexes slipped more than 1 per cent on Friday, with crude oil retreating back below US$45 a barrel also driving losses among energy stocks.

West Texas Intermediate crude added 0.3 per cent to US$44.83 a barrel Monday, after sinking 4.7 per cent on Friday amid ongoing concern over the global glut. Brent crude rose 0.3 per cent to US$47.60 following a 3.3 per cent drop at the end of last week.

Commercial petroleum stockpiles in Saudi Arabia, the world's biggest crude exporter, increased to 320 million barrels, the highest since at least 2002, according to data Sunday on the website of the Riyadh-based Joint Organisations Data Initiative. Venezuela and Saudi Arabia agreed to restore stability in the oil market, Foreign Minister Delcy Rodriguez said on Twitter over the weekend.

Elsewhere in commodity markets, copper for three-month delivery dropped to US$5,233 a metric ton. While nickel rallied 1.1 per cent, other industrial metals declined, with zinc and lead falling at least 1.3 per cent.

Gold for immediate delivery slipped 0.2 per cent to US$1.137.47 an ounce following a weekly advance of 2.8 per cent, the first since the second-last week of August.

CURRENCIES

The kiwi weakened to 63.75 US cents after a gauge of consumer confidence slid to the lowest since 2012 for the third quarter. The won slipped 0.8 per cent to 1,172.30 a dollar after rallying last week. The ringgit sank 0.7 per cent following Friday's selloff in crude.

Bloomberg's Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed at 1,200.61 after snapping a two-day drop on Friday to climb 0.7 per cent.

BLOOMBERG