You are here

Asia: Stocks drop with bonds, won on ECB, Fed concern; oil jumps

40022892 - 29_09_2016 - JAPAN-STOCKS.jpg

[WELLINGTON] Stocks and bonds fell in Asia and South Korea's won slid the most in three weeks as the prospect of major central banks adopting less accommodative policies unsettled markets.

Shares retreated in Australia, New Zealand and South Korea, while equity index futures foreshadowed losses in Hong Kong, Singapore and Taiwan. Japanese shares advanced after the yen dropped on Tuesday by the most since August.

New Zealand's dollar extended declines after global dairy prices fell at auction, while the country's 10-year debt slid for a third day following declines in US Treasuries. Crude oil rallied as industry data indicated American oil stockpiles declined last week.

Financial markets were shaken Tuesday after Bloomberg News reported that the European Central Bank is likely to gradually taper asset purchases as it ends quantitative easing. Traders have been monitoring central banks for any signs they may be willing to pull back on stimulus measures, with bets on an interest-rate increase from the Federal Reserve in 2016 rising after Richmond Fed chief Jeffrey Lacker and Cleveland's Loretta Mester called for tighter monetary policy this week.

Chicago Fed president Charles Evans said Wednesday that interest rates "may well be changing soon".

"We've been at an inflection point in financial markets for a few weeks now, with market participants sensing a changing tide among central banks," Chris Weston, chief markets strategist at IG Ltd in Melbourne, said in an e-mail to clients.

"The wash-up has been a slight pickup in implied market volatility with some signs of risk aversion that need to be watched closely."

The ECB will probably wind down bond purchases in steps of 10 billion euros a month once a decision is taken to end quantitative easing, according to euro-zone central-bank officials, who asked not to be identified. They didn't rule out an extension of the program past the current end-date of March 2017 at the full pace of 80 billion euros (S$122.6 billion) a month.

The MSCI Asia Pacific Index was down 0.2 per cent as of 9:30am Tokyo time, with Australia's S&P/ASX 200 Index losing 0.6 per cent and South Korea's Kospi index falling 0.8 per cent. Japan's Topix index gained 0.2 per cent.

Futures on the S&P 500 Index declined 0.1 per cent after the underlying benchmark slipped to a one-week low in the last session.

The yen rose 0.2 per cent versus the dollar following a 1.2 per cent drop on Tuesday. The Bloomberg Dollar Spot Index - which tracks the greenback against 10 major peers, including Japan's currency - was little changed after gaining 0.6 per cent last session.

The kiwi weakened for a third straight day, declining 0.4 per cent. Average prices for whole milk powder, New Zealand's chief farm export, fell 3.8 per cent at the GlobalDairyTrade auction, while an index of overall dairy prices dropped by 3 per cent.

The pound was steady at US$1.2729 after sinking as much as 1 per cent on Tuesday and touching its lowest point since 1985 amid anxiety the UK is headed for a so-called hard Brexit.

New Zealand government debt led declines in early Asian trade, with yields on notes due in a decade rising seven basis points to 2.48 per cent. The rate on similar-maturity Australian bonds added five basis points to 2.12 per cent. The yield on 10-year US Treasuries declined two basis points to 1.67 per cent, after surging six basis points on Tuesday. German bund yields rose by the most in almost a month in the last session.

"The idea that they are thinking about the end of QE is a shock for the market," said Aaron Kohli, a fixed-income strategist at BMO Capital Markets Corp in New York, one of 23 primary dealers that trade with the Fed, referring to the ECB.

"That was seen as a bearish sign by the market."