South Africa’s rand, Mexico’s peso and the Australian dollar were the three worst-performing major currencies. U.S. crude dropped to below $46 a barrel before data that’s forecast to show U.S. stockpiles increased and iron ore slid to its lowest level since July. The Stoxx Europe 600 Index of shares rose from a two-week low, while the MSCI Asia Pacific Index held near its lowest level in a month. Hong Kong shares reversed gains after a slew of Chinese data failed to convince investors that the world’s second-biggest economy is improving, according to Bloomberg.
Investors remain wary of riskier assets even after dovish comments on Monday from Federal Reserve Governor Lael Brainard damped expectations for a U.S. interest-rate increase next week. Her remarks came after financial markets were jolted out of a period of relative calm by signs central banks in Europe and Japan were questioning the ability of loose policy to revive inflation and economic growth. The Fed and the Bank of Japan have policy decisions on Sept. 21, with the latter weighing the case for more stimulus.
“With Brainard’s remarks, rate-hike expectations have backed down,” said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities Co. in Tokyo. “But the market isn’t likely to take on an aggressive buying mode before the results from the BOJ and the Fed’s monetary policy meetings next week.”
The probability of a Fed rate hike at next week’s meeting dropped by eight percentage points on Monday to 22 percent, futures prices indicate. The European Central Bank left policy unchanged at a review last week and President Mario Draghi played down the prospect of further stimulus.
Currencies
“The Aussie dipped during the Asian session as iron ore futures fell,” said Elias Haddad a senior currency strategist at Commonwealth bank of Australia in Sydney. “Rising steel stockpiles in China is raising surplus concerns in steel markets.”
Malaysia’s ringgit sank as much as 1.3 percent from Friday’s close after a decline in oil prices dimmed prospects for Asia’s only major net exporter of crude. The Southeast Asian nation’s markets were shut Monday for a holiday. The currencies of Canada and Norway, which also export crude, slid 0.4 percent on Tuesday.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, gained 0.2 percent after dropping 0.3 percent on Monday. The yen weakened less than 0.1 percent, having surged 0.8 percent in the last session as Brainard said the case for the Fed to raise rates was “less compelling.”
"Dollar-yen is obviously one of the most Fed-sensitive currency pairs,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “In the wake of Brainard’s speech and with looming data likely to tilt to the soft side, we expect pricing for Fed tightening to wane further.”
Commodities
Crude dropped 1.7 percent to $45.50 a barrel in New York. U.S. data due Wednesday are forecast to show the country’s oil inventories rose by 4 million barrels last week, which would be the biggest increase since April. OPEC also revised up its projections for rival supplies in 2017, predicting an increase in output from outside the group before major producers meet in Algiers for talks later this month.
“Inventories remain high, they’re well above five-year trend levels,” said David Lennox, a resources analyst at Fat Prophets in Sydney. “The market is just waiting to see what happens at the OPEC meeting. If there is a concrete deal and it’s actioned, we’d expect to see prices rally.”
Iron-ore futures fell 1.1 percent in Dalian, China, to post their lowest close since June. Iron ore faces renewed pressure before year-end as rising supply offsets an improvement in Chinese demand, according to Clarksons Platou Securities Inc., which dubbed the raw material its least favorite commodity.
Stocks
The Stoxx Europe 600 Index was up 0.3 percent, while futures on the S&P 500 Index slumped 0.7 percent.
The MSCI Asia Pacific Index was little changed, after sliding on Monday by the most since June. Shares in Indonesia, Malaysia and Singapore fell after holidays led to them missing out on the last session’s rout, while the Stock Exchange of Thailand Index climbed for the first time in a week.
Hong Kong’s Hang Seng Index fell 0.2 percent, after earlier rallying as much as 1.6 percent, and the Shanghai Composite Index was little changed. China’s factory output, fixed-asset investment and retail sales all expanded in August by more than economists forecast, data showed Tuesday.
"Though China’s industrial production and retail sales beat expectations, people won’t expect data to continue to improve," said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. "The data also don’t signal any intention for economic stimulus, so the market can’t rebound strongly."
Bonds
U.S. Treasuries due in a decade were little changed and yielded 1.66 percent. The rate touched 1.70 percent on Monday, the highest level since June. Pacific Investment Management Co.’s Total Return Fund, the world’s biggest actively run debt fund, cut the duration of its holdings in August and trimmed its ownership of U.S. government securities.
Investors will get a chance to bid on the longest-term U.S. debt in Tuesday’s 30-year auction. So-called long bonds have fallen 3.4 percent in September, headed for their steepest monthly loss in more than a year, based on Bank of America Corp. data.
The yield on Japan’s 20-year bonds fell two basis points to 0.445 percent after an auction of the tenor achieved a higher price than was forecast by any of the 13 traders in a Bloomberg survey.