Asian stocks erase gains, yen hits 40-year low

ASIAN equities erased earlier gains as technology stocks in South Korea edged lower after a blistering rally this quarter and the yen weakened to a historic 40-year low.

The MSCI Asia Pacific Index fell 0.2 per cent, giving up gains of as much as 0.6 per cent, as chipmakers such as Samsung Electronics and SK Hynix declined. Still, the regional benchmark was on track for its best quarterly gain in 17 years. The Kospi Index, the world’s best-performing major gauge this year, dropped 0.9 per cent. US equity-index futures fell as much as 0.4 per cent.

Meanwhile, the yen extended its losses early Tuesday (Jun 30) to trade past 162 per dollar. The currency’s slide during the New York session to the weakest level since 1986 will generate unease in Japan and put traders on high alert for authorities wading into the market.

Global equities are on track for their best quarter in almost six years as investors crowd into the artificial intelligence trade. Investors now turn their focus to the US-Iran talks Tuesday and US June jobs data on Thursday that may offer clues on whether the Federal Reserve will keep interest rates higher for longer.

In the US, the stock resurgence has defied sceptics, coming in the face of war, an oil supply shock and inflation jitters. Since bottoming three months ago, the S&P 500 has staged one of the swiftest rebounds this century, gaining 20 per cent from its Mar 30 low to its Jun 2 peak – something it has done just three other times since 2000.

“We continue to believe strongly that the action in the tech sector will continue to be the main driver in the stock market,” said Matt Maley at Miller Tabak.

While tech doesn’t have to keep outperforming in a big way, the sector needs to refrain from declining in a significant manner due to its heavy weight in the S&P 500, he noted. Otherwise, individual investors could start “rotating” towards cash, especially after hearing so much talk about bubbles in the past year, Maley added.

Elsewhere, Brent slipped lower before the expected US-Iran talks in Doha. The commodity traded around US$72.55 a barrel. Gold was little changed around US$4,015 an ounce.

Attention in Asia is on the yen. While the weaker Japanese currency has boosted exporters’ profits and helped propel the country’s stocks to record highs, it has also raised import costs, squeezed households and added to political pressure on Japanese Prime Minister Sanae Takaichi’s government.

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The Bank of Japan lifted its benchmark interest rate on Jun 16 to 1 per cent, the highest since 1995. Yet the impact was minimal, as traders expect the Fed to stay hawkish going forward.

“Now that USD/JPY has cracked the much talked about 1986 level, price data from that year suggests the 164-to-165 area is where foreign exchange traders will be focused. Of course, should the pace of yen weakness quicken from here, then investors will be expecting Japanese authorities to step in with purchases of the currency,” said Mark Cranfield, markets live strategist at Bloomberg.

Meanwhile, US President Donald Trump said peace talks with Iran are set to resume on Tuesday after both sides agreed to halt a series of tit-for-tat attacks over the Strait of Hormuz. The renewed strikes served as a reminder of the fragility of their truce. BLOOMBERG