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Asia: Stocks slip, euro falls on Draghi comments

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[SYDNEY] Asian equities fell in thin trading and the euro slipped after Mario Draghi's dovish message to the European Parliament and as investors assessed the path for higher US borrowing costs.

Stocks in Japan retreated as the yen strengthened. Hong Kong is on holiday Tuesday and markets in China are shut for a second day after the UK and US were closed Monday, depressing volumes and limiting price movements. The euro dropped for a fourth straight day. South Africa's rand extended losses after President Jacob Zuma survived a bid by some members of his party to oust him.

The key challenge for investors remains gauging the ability of the world's economy to withstand rising borrowing costs. Despite the record highs posted by global equities, the rally in bond markets suggests traders are cautious. In a speech in Singapore on Monday, Fed Bank of San Francisco President John Williams reaffirmed his view that a total of three interest-rate increases makes sense for this year.

Donald Trump's ability to come through with reform policies also remains an issue. Fed Bank of St Louis President James Bullard said the new administration will need to fulfill the expectations that have driven the stock market higher.

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Market voices on:

"Washington does have to deliver at some point," Mr Bullard said in an interview on Bloomberg TV in Tokyo.

"I think that is a concern going forward, whether the honeymoon period would end at some point and maybe the reality of American politics would settle in."

He also said the US dollar recently has weakened slightly because of "changes in perceptions of policies of other central banks in tandem with US monetary policy."

European Central Bank President Draghi, speaking in Brussels, signalled there's little urgency to start unwinding the central bank's 2.3 trillion-euro (S$3.61 trillion) bond-purchase program at the next policy meeting on June 8.

Here are some of the key events coming up:

Euro-area data this week may show the strongest economic confidence in a decade on Tuesday. The preliminary headline inflation rate for the region will come on Wednesday.

France will release figures on consumer confidence and economic output, while Germany and Spain also report on inflation indicators.

Fed speakers are out and about as the FOMC's June 13-14 meeting approaches. Lael Brainard and Robert Kaplan will be in New York on Tuesday and Wednesday, respectively.

The US jobs report Friday may bolster the case for a rate hike, with a gain of 185,000 positions expected.

Brazil's central-bank decision on Wednesday will probably see a cut of 75 to 100 basis points from the current 11.25 per cent, according to economists.

China's May manufacturing PMIs on Wednesday might indicate that the nation's 2017 growth has already peaked.

The EIA is due to release its monthly supply reports Wednesday.

Currencies

The euro fell 0.3 per cent to US$1.1129 as of 10:25am in Tokyo, dropping for a fourth straight session. The British pound lost 0.3 per cent, while the Australian and New Zealand dollars slid 0.2 per cent. The Bloomberg Dollar Spot Index climbed 0.1 per cent.

The yen was the only major currency to strengthen, rising 0.3 per cent to 110.88 per US dollar.

The rand retreated 0.5 per cent, adding to the previous session's 0.6 per cent decline.

Stocks

Japan's Topix fell 0.3 per cent. Data on Tuesday showed Japan's jobless rate stayed at the lowest in more than two decades last month, but household spending remained mired in a long slump.

Australia's benchmark gauge dropped 0.4 per cent and South Korea's Kospi swung between gains and losses.

Futures on the S&P 500 Index fell less than 0.1 per cent. The underlying gauge closed at a record high on Friday.

European stocks were little changed on Monday, while shares in Italy's banks dropped as former Prime Minister Matteo Renzi raised the prospect of an early election.

Commodities

Gold advanced 0.1 per cent to US$1,269.44 an ounce.

Oil held gains near US$50 a barrel after prices swung last week following the agreement by Opec and its allies to extend cuts by nine months.

Bonds

The yield on 10-year Treasuries climbed two basis points to 2.23 per cent.

Australia 10-year yields fell four basis point to 2.38 per cent.

BLOOMBERG

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