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Most Asian stocks fall as US dollar retreats amid rebound in bonds

Thursday, November 17, 2016 - 10:36

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[WELLINGTON] Most Asian stocks fell and the US dollar weakened versus most peers as investors mulled the outlook for Donald Trump's presidency amid expectations that the Federal Reserve will raise interest rates next month.

About five shares declined for every three that advanced on the MSCI Asia Pacific Index in early trading in the region as futures foreshadowed losses in Hong Kong, Taiwan and South Korea, where markets are opening an hour late owing to national exams.

Bloomberg's US dollar index retreated from a nine-month high and benchmark US Treasuries rise before American inflation data and testimony from Fed Chair Janet Yellen.

Australian and New Zealand extended the last session's recovery from a post-US election debt rout. Oil fell following an increase in American stockpiles.

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It's been an eventful past week for markets, with the unexpected election of Mr Trump as leader of the world's biggest economy spurring bets on the Federal Reserve tightening policy amid expectations he'll ramp up fiscal stimulus.

Central bank officials, including Boston Fed President Eric Rosengren, have said more fiscal support would bolster the case for higher rates, even with the latest data indicating US inflation remains subdued.

"A December rate hike is almost guaranteed," James Woods, global investment analyst at Rivkin Securities in Sydney, said in an e-mail to clients.

"What will be important will be any revisions to future hike projections."

The prospect of more fiscal stimulus amid President-elect Mr Trump's pledge to bolster infrastructure spending, along with speculation he will employ a business-friendly stance, "will ultimately steepen these projections should it occur," Mr Woods said.

"Until these policies are actually implemented and impact the underlying economy, it is unlikely" expectations for further rate hikes will be revised higher, he said.

Australia reports a swathe of jobs data Thursday, while the Philippines updates on gross domestic product. Both Hong Kong and Indonesia review borrowing costs, with the latter projected to keep its seven-day repurchase rate at 4.75 per cent, according to economists polled by Bloomberg.

Stocks

Japan's Topix index retreated from a nine-month high and Australia's S&P/ASX 200 Index fell to a one-week low, led by resource stocks after prices for iron ore - the country's chief export - dropping for a third session on Wednesday. Rio Tinto Ltd, the world's second-biggest mining company, fluctuated in Sydney after the firm fired a top executive following a probe into a payment connected to a giant iron ore project in Guinea.

Kospi index futures fell 0.3 per cent in Seoul, while contracts on Hong Kong's Hang Seng and Hang Seng China Enterprises indexes were down at least 0.1 per cent.

A 1.4 per cent drop in financial shares drove the S&P 500 Index down 0.2 per cent Wednesday, as expected volatility in the index ticked higher. The CBOE SPX Volatility Index rose 2.6 per cent last session, after falling 7.7 per cent on Tuesday, and gaining the previous day. Energy producers also fell Wednesday amid a 0.5 per cent pullback in US crude. S&P 500 Index e-mini futures were little changed Thursday.

Currencies

The Bloomberg US Dollar Spot Index, which tracks the greenback against 10 major peers, slipped 0.2 per cent. The yen rose 0.3 per cent to 108.81 per US dollar, though is still down more than 3 per cent since Mr Trump's victory in the Nov 8 US election. The euro gained 0.1 per cent, snapping an eight-day losing streak.

Bonds

The yield on US Treasuries due in a decade fell two basis points to 2.20 per cent, having surged as much as 45 basis points in the wake of Mr Trump's election win to this year's high of 2.30 per cent on Monday.

Traders assign about a 94 per cent probability, the highest level of 2016, to the Fed boosting rates at its final meeting for the year on Dec 13-14, futures contracts indicate.

"The market is firming in its expectations that the Fed is going to go," said Aaron Kohli, a fixed-income strategist in New York at BMO Capital Markets Corp, one of 23 primary dealers that trade with the central bank.

"We sold off very sharply in the last week and a half, and there's some money that's being put to work."

New Zealand's 10-year bonds rose for a third day, pushing their yield down four basis points to 3.06 per cent. Similar-maturity notes in Australia gained for a second day.

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