Asia: Stocks slump after US selloff on Trump woes

BC-GLOBAL-WRAP Markets Wrap Choong En Han and Min Jeong Lee 20170518T034008Z (Bloomberg) - Volatility spread across Asian equity markets after turmoil surrounding Donald Trump's administration sparked the worst day in eight months for U.S. stocks. The dollar climbed while gold steadied as a rush to haven assets subsided.

Benchmark equity gauges in Australia and Japan dropped more than 1 percent after the S&P 500 Index plummeted by the most since September. The Bloomberg Dollar Spot Index climbed, bolstered by a slump in emerging-market currencies as a political crisis in Brazil added to the chaos in Washington. Other assets showed more calm after Wednesday's sharp moves, with U.S. equity futures rising. Treasury yields were steady after dropping to an almost one-month low as bets on a Federal Reserve rate increase next month were pared.

"The market has come alive with the dynamic of volatility, which will no doubt be welcomed by many of the shorter-term traders out there," Chris Weston, chief market strategist at IG Markets Ltd. in Melbourne wrote in note. "When so many global markets were at multi-year, if not all-time highs, you know there would be some pain being felt out on the floors today." A gauge of U.S. stock volatility surged the most since the U.K. voted to leave the European Union last June. Wall Street is finally taking notice as the turmoil surrounding Trump threatens to derail the policy agenda that helped push global equities to records as recently as Tuesday. Many of the trades sparked by the president's shock November election have reversed, with the dollar erasing its post-election rally.

The administration is facing scrutiny about whether the president asked the former head of the FBI to drop an investigation, as well as questions about his handling of secret intelligence. The Justice Department named a special counsel to oversee the FBI's investigation of Russia's efforts to influence the 2016 election. Brazil also plunged into political crisis, following reports that President Michel Temer was involved in an alleged cover-up with the jailed former speaker of the lower house of Congress.

The political wranglings come amid increasing concern about the pace of the global economy, after weaker-than-expected readings on US inflation and GDP. Data on Thursday showed Japan's economy expanded at a faster pace than forecast in the latest quarter.

Australia's jobless rate unexpectedly dropped, returning to lows last seen in January. In China, home-price growth eased last month after authorities imposed stricter restrictions on property purchases.

"The important thing is what's going on with the economy," said Hideyuki Suzuki, a general manager at SBI Securities in Tokyo. "It's not just the political anxiety, but this coming on top of some US data that have shown soft numbers, lowering the odds of a rate hike."

What's ahead for investors: Federal Reserve Bank of Cleveland President Loretta Mester speaks on the economy and monetary policy in the US Odds of a June Fed rate hike settled around 60 per cent, while full pricing of a next hike shifted to November from September, per Fed-dated OIS rates.

US Treasury Secretary Steven Mnuchin offers his first congressional testimony since taking office, appearing before the Senate Banking Committee on issues ranging from the rollback of Dodd-Frank financial regulations to his decision not to name China a currency manipulator.

Here are the major moves in the markets: The MSCI Asia Pacific Index slid 0.8 per cent, the most since April 6, as of 12.33pm in Tokyo. Japan's Topix slumped 1.5 per cent while a volatility measure on the Nikkei 225 Stock Average jumped 7.9 per cent to the highest his month. Australia's S&P/ASX 200 Index lost 1.3 per cent and South Korea's Kospi Index dropped 0.5 per cent. Hong Kong's Hang Seng Index fell 0.3 per cent while the Hang Seng China Enterprises Index retreated 0.7 per cent.

Futures on the S&P 500 rose 0.2 per cent after the benchmark gauge fell 1.8 per cent on Wednesday, its worst day since Sept 9. The Dow Jones Industrial Average lost 372.82 points, while the Nasdaq Composite Index plunged 2.6 per cent for its steepest drop since June 24. The Stoxx Europe 600 Index fell 1.2 per cent.

A Japan-traded ETF tracking Brazil's Ibovespa Index tumbled 9 per cent, the most since November, as political crisis returned to the country after last year's impeachment process.

CURRENCIES

The yen fell 0.2 per cent to 110.99 per dollar. The currency surged 2.1 per cent, the most since November, on Wednesday.

The Bloomberg Dollar Spot Index increased 0.1 per cent, after dropping 0.5 per cent on Wednesday to the lowest level since Nov 8. The Mexican peso led declines among emerging-market currencies, slumping 1 per cent. The South Korean won dropped 0.7 per cent and the South African rand fell 0.6 per cent.

The Australian dollar rose 0.3 per cent, erasing an earlier decline of 0.3 per cent and climbing for a seventh straight day, the longest streak since October 2015. Data showed employment rose 37,400 in April, beating estimated for a gain of 5,000. The jobless rate was at 5.7 per cent, compared with a 5.9 per cent estimate.

The euro was flat at US$1.1156, after four straight days of gains.

BONDS

The yield on 10-year Treasuries rose one basis point, after dropped 10 basis points on Wednesday to 2.23 per cent, the lowest since April 19.

Australian benchmark yields fell five basis points to 2.48 per cent.

Commodities Gold was flat at US$1,261.48 an ounce following the biggest one-day rally since the aftermath of the Brexit vote.

Crude dropped 0.2 per cent to US$48.96 a barrel, after jumping 0.8 per cent in the previous session. Oil reached the highest close since April 28 as US supplies fell for a sixth week - a sign that Opec-led production curbs are starting to be felt in the world's biggest oil-consuming nation.

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