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Asia: Stocks snap rally as vote deadlock sinks Australian assets

Monday, July 4, 2016 - 09:37

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[WELLINGTON] Asian stocks fell for the first time in four days as a rebound in the yen weighed on Japanese shares, while Australian assets slipped with the country in political limbo after a national election at the weekend failed to deliver a conclusive winner.

Japan's Topix index swung back to losses as the yen traded below 103 per US dollar following a rebound on Friday. Banks and consumer stocks led the drop in Sydney as the Australian dollar slipped from a one-week high and 10-year government bonds also fell.

Bets central banks will boost stimulus amid the UK's vote to leave the European Union saw gold holding near its highest price in more than two years, with Brent oil rising above US$50 a barrel.

The steepest slide in global equities since 2008 was reversed last week as policy makers from England to Japan indicated they would act to stem the potential impact of the Brexit decision. The US dollar has retreated as traders push out bets on an interest-rate hike from the Federal Reserve, with odds of an increase by December at just 12 per cent.

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Neither party has yet won enough voting districts to secure power in Australia, with Shane Oliver, head of investment strategy at AMP Capital Investors Ltd, saying investors were concerned a so-called hung parliament could endanger the nation's AAA rating.

"While the potential for increased liquidity from central banks has helped calm stock markets, there's still a lot of uncertainty out there," Nicholas Teo, a trading strategist at KGI Fraser Securities in Singapore, said by phone.

"The strengthening US dollar isn't good for emerging markets. With China still on a slowdown, US recovery tentative and the messy UK-EU divorce, volatility will remain heightened."

Australia reports on building approvals Monday, and a gauge of business sentiment in Thailand is due. Markets in the US and in Indonesia are closed for holidays.

Stocks

The MSCI Asia Pacific Index fell 0.3 per cent as of 9:26 am Tokyo time, following last week's 3.5 per cent rebound. The Topix lost 0.4 per cent, while the Kospi index in Seoul traded little changed.

New Zealand's S&P/NZX 50 Index added 0.1 per cent, building on last week's 3.9 per cent surge.

In Australia, the S&P/ASX 200 Index dropped 0.5 per cent, halting a three-day advance that saw the index close at a one- week high on Friday.

"Markets don't like uncertainty and this will impact sentiment in the short term," Niv Dagan, a Melbourne-based executive director at Peak Asset Management LLC, said by phone, referring to the Australian election.

"The big factor is consumer and business confidence and in this environment, that will remain fragile. The uncertainty will rattle markets."

Futures on the S&P 500 Index were little changed at 2,095.75 after the gauge climbed another 0.2 per cent on Friday, bringing its surge over four days to 5.1 per cent. The US benchmark is almost back to where it was before the fallout from the Brexit vote, with telephone shares and utilities leading the recovery. The MSCI All-Country World Index advanced 3.3 per cent last week, its best performance since March.

Contracts on the FTSE China A50 Index rose 0.2 per cent in trading at the end of last week, with markets in Hong Kong to resume Monday following a holiday on Friday.

Currencies

The Aussie fell for the first time in five days, dropping 0.4 per cent to 74.68 US cents.

The inconclusive voting result raises the prospect Prime Minister Malcolm Turnbull's Liberal-National coalition - or the main opposition Labour Party - will be forced to work with a handful of disparate independent lawmakers in order to stay in power. Ballot counting doesn't resume until Tuesday.

"It looks like another three years of de facto minority government, which is not a great outcome for the economy and investment markets," said Mr Oliver at AMP, which manages more than US$110 billion in Sydney.

Japan's currency was little changed at 102.55 per US dollar following the Friday rebound, which pared last week's drop to 0.3 per cent. The yen typically moves at odds with Japanese shares, weakening last week as Bank of Japan governor Haruhiko Kuroda said more funds could be injected into the market should they be needed. The haven currency touched 99.02 in the wake of the vote for Brexit, its strongest level since 2014.

The New Zealand dollar rose 0.5 per cent against the Aussie, while the pound gained 0.1 per cent to US$1.3281 following a two- day decline.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed after slipping 0.4 per cent last week as the UK referendum pushed out the timing for Fed policy tightening.

Commodities Brent futures added 0.1 per cent to US$50.42 a barrel, while West Texas Intermediate crude traded around US$48.98.

Oil also recovered last week, rising 2.8 per cent amid the speculation global policy makers will act to limit the fallout from Brexit. A militant group operating in Nigeria's southern oil-producing region, meanwhile, said it attacked five crude-pumping facilities overnight Sunday, dealing a blow to the government's effort to enforce a cease-fire.

Gold for immediate delivery rose 0.1 per cent to US$1,342.15 an ounce, climbing for a fourth day, while copper, nickel, aluminum and zinc slipped at least 0.2 per cent in London.

BLOOMBERG

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