Stocks in Asia Mixed Ahead of Fed as Yuan Retreats

EghtesadOnline: Asian investors deferred taking any major positions ahead of the Federal Reserve’s policy meeting that’s expected to focus on unwinding stimulus efforts. Stocks in the region diverged, while China’s yuan slipped as the dollar maintained gains.

News ID: ۷۴۳۸۳۵

19 September 2017

As benchmarks from Hong Kong to South Korea retreated, Japanese equities played catch-up, with indexes gaining more than 1 percent following Monday’s holiday. China’s currency slipped to a two-week low offshore, and also weakened in Shanghai, amid efforts by policy makers to counter excessive strengthening. The yen held on to a two-day drop versus the greenback, and Treasury yields were steady. S&P 500 Index futures were little changed, according to Bloomberg.

Markets maintained a risk-on bias after last week’s equity gains, with investors turning their attention to the Fed’s two-day meeting that starts Tuesday. While they’re widely expected to keep the benchmark interest rate unchanged, close attention will be paid to any signals for an increase later in the year and to the timing on plans to shrink the the Fed’s $4.5 trillion balance sheet. China eased restrictions on shorting the yuan last week, seen as a sign Beijing wants to counter a surge that’s seen the currency gain 2.9 percent this half.

“We are not overly concerned about” the Fed’s quantitative tightening plans, Merrill Lynch and U.S. Trust head of fixed-income strategy Matthew Diczok, told Bloomberg TV’s “What’d You Miss?” show. “If you model it out, over about the next three years they’ll take out about $1.3 trillion or so. That’s only a third of what they put into the market. So it’s going to be very slow, very gradual, very deliberate and it shouldn’t lead to any near-term fireworks into the market at all.”

The Reserve Bank of Australia said it expects to see solid employment growth as the economy gradually picks up, while noting risks from housing debt outpacing household income. The Australian dollar briefly spiked after the release of minutes of this month’s policy meeting.

Geopolitical risks will continue to lurk in the background as U.S. President Donald Trump prepares to address the United Nations on Tuesday for the first time, with world leaders seeking a diplomatic solution to North Korea’s nuclear provocations.

What to watch out for this week:

The Bank of Japan is predicted to stand pat when it reviews policy Thursday. The BOJ probably won’t reveal when it will unwind stimulus, but could signal determination to keep the yield curve under control.

Indonesia and the Philippines are among countries also reviewing monetary policy this week.

Home construction and sales of previously owned properties are the highlights of the week’s U.S. economic calendar.

Campaigning continues in Germany, days before the Sept. 24 election, as Chancellor Angela Merkel and challenger Martin Schulz make their final pitches to voters. New Zealand goes to the polls on Sept. 23.

Here are the main moves in markets:

Stocks

Japan’s Topix index added 1.5 percent as of 1:41 p.m. Tokyo time. The Kospi index lost 0.1 percent in Seoul, while Hong Kong’s Hang Seng Index dropped less than 0.1 percent and the Shanghai Composite Index was down 0.3 percent. Australia’s S&P/ASX 200 Index gained 0.1 percent.

The Philippines’ benchmark index fell after closing at a record high on Monday.

S&P 500 Index futures were flat after the underlying measure rose 0.2 percent to a fresh record on Monday.

Currencies

The yen was steady at 111.55 per dollar after slipping 0.7 percent last session.

The Bloomberg Dollar Spot Index was little changed after climbing 0.3 percent on Monday.

The yuan dropped as much as 0.3 percent to 6.5960 per dollar in Hong Kong, the weakest intraday level since Sept. 1. Read more here about the implications of the Chinese currency’s surge.

The euro was up 0.1 percent at $1.1968.

The Australian dollar was little changed at 79.68 U.S. cents after jumping as high as 79.94 on the RBA minutes. New Zealand’s dollar added 0.2 percent to 72.78 U.S. cents after falling 0.5 percent in the previous session.

Bonds

Yields on 10-year Treasuries dropped one basis point to 2.22 percent. They increased by three basis points on Monday to the highest level in more than a month.

The yield on similar maturity Australian bonds was steady at 2.81 percent. The three-year yield was at 2.17 percent, extending last week’s surge, and closing in on a three-year high.

Yields on Portugal’s benchmark 10-year notes slid to a 20-month low Monday after S&P Global Ratings revised the sovereign rating to BBB- from BB+ with a stable outlook. The yield fell 27 basis points to 2.53 percent, having earlier touched 2.50 percent, the lowest since January 2016.

Commodities

Gold was little changed at $1,308.18 an ounce. It declined 1 percent on Monday.

West Texas Intermediate crude steady at $49.89 a barrel, little changed for a third session.

Iron ore futures rose for the first time in four days, adding 0.3 percent on the Dalian Commodity Exchange in China. Read more about the raw material nearing a bear market here.