Sunday 19 November 2017

Stocks soft on Fed angst, G20 fails to give shot in arm

Asian stocks
Asian stocks

Asian stocks retreated on Monday after a weekend meeting of G20 policymakers ended with no new coordinated action to spur global growth and as solid US data revived expectation of the Federal Reserve further raising rates before year-end.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.6pc and appeared likely to post its second consecutive month of losses, with a 1.2pc drop so far this month.

Japan's Nikkei failed to maintain early gains, falling 1.0pc to post a monthly decline of 8.5pc, the biggest since May 2012, while U.S. stock futures ESc1 fell 0.6pc in early Asian trade.

European shares are expected to follow Asia's lead, with spread betters looking to a fall of up to 0.5pc each in Germany's DAX and France's CAC.

Mainland Chinese shares fell sharply with the bluechip CSI 300 Index tumbling 3.6pc, hitting 15-month lows.

Disappointing earnings results released over the weekend, the lack of concrete measures from the group of 20 economies and political implications from the latest cyberspace crackdown by Beijing were all cited as a culprit.

G20 finance ministers and central bankers agreed to use "all policy tools – monetary, fiscal and structural – individually and collectively" to reach the group's economic goals, citing a series of risks to world growth.

While some market players say the statement could mildly underpin market sentiment, the lack of any concrete action - especially on fiscal stimulus as some had speculated - was seen as a disappointment.

A pledge in the statement to "consult closely" on foreign exchange markets was also seen by some market players as hindering a few countries from adopting flexible policy actions.

"The G20 communique basically says 1) the world is not as bad a place as markets think; and 2) if it gets worse we will use fiscal, monetary and structural policy aggressively to fix it," Steven Englander, global head of G10 FX Strategy at CitiFX, said in a note to clients.

"In baseball parlance, they were aiming for a single in terms of restoring confidence and they probably achieved it," he added.

On the other hand, fresh U.S. economic data published on Friday revived expectations of Federal Reserve rate increases, helping to lift U.S. bond yields and the dollar.

Consumer spending rose solidly in January and underlying inflation picked up by the most in four years. Gross domestic product growth in the fourth quarter was revised higher, to a 1.0pc annual rate

"The U.S. economy doesn't look too bad after all. So some people seem to start thinking that the Fed's rate hike could be back on the agenda," said Bart Wakabayashi, head of forex at State Street.

The figures prompted Federal funds rate futures <0#FF:> to price well over a 50pc chance of one rate hike by the end of year, compared to almost zeropc chance in mid-February.

The two-year U.S. Treasuries yield US2YT=RR also hit a four-week high of 0.817pc on Friday and last stood at 0.786pc versus its Feb 11 low of 0.582pc.

The greenback's yield allure helped lift the dollar's index against a basket of six major currencies .DXY =USD to a three-week high of 98.26 on Friday. It last stood at 97.93.

As the dollar gained, the euro fetched $1.0940, having slipped to a three-week low of $1.0912 on Friday. In early Asia on Monday, it traded at $1.0940, almost flat on the day.

The yen, however, rose more than onepc to trade at 112.80 yen to the dollar, rebounding quickly from one-week low of 114 to the dollar touched on Friday.

With gains of 7.6pc in February, the yen looks set to make its biggest gain since October 2008.

In contrast, fears of "Brexit" offered traders a good excuse to sell the British pound, which fell to a seven-year low of $1.3841.

Although the British government managed to get G20 to agree to include a warning against "Brexit" in the statement, that appeared to have limited impact. The British currency is down 2.7pc on month.

Equally under pressure was the South Korean won, which fell to 5-1/2-year lows, shedding 3.1pc this month, on worries about growth prospects in China and tensions with North Korea.

The won's slide came despite suspected dollar-selling intervention by Seoul.

Elsewhere, the oil markets maintained their relative firmness as short-sellers have reduced their positions following major oil producing countries' decision to freeze output earlier this month.

While the measure is unlikely to solve the persistent supply glut in the market, it was seen as a first step for further cooperation in the future.

International benchmark Brent futures LCOc1 climbed 0.6pc from their last close to $35.30 per barrel, on course to make their first monthly gains in four months.


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