Asian Stocks Soft on Fed Angst, G-20 Fails to Give Shot in Arm

TOKYO (Reuters) -
A man walks past an electronic board showing Japan's Nikkei 225 outside a brokerage in Tokyo, Japan January 12, 2016. Japan's Nikkei fell 2.7 percent after a market holiday on Monday, closing at its lowest in nearly a year, while U.S. stock mini futures were in the red pointing to a weak start. REUTERS/Toru Hanai
A man walks past an electronic board showing Japan’s Nikkei 225 outside a brokerage in Tokyo, Japan. (Reuters/Toru Hanai)

Asian stocks retreated on Monday after a weekend meeting of G-20 policymakers ended with no new coordinated action to spur global growth, while solid U.S. data revived expectation of the Federal Reserve further raising rates before year-end.

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

Japan’s Nikkei failed to maintain early gains, falling 1.0 percent to post a monthly decline of 8.5 percent, the biggest since May 2012, while U.S. stock futures fell 0.6 percent in early Asiantrade.

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

Mainland Chinese shares fell sharply with the bluechip CSI 300 Index tumbling 3.6 percent, 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 culprits.

G-20 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 1.0 percent 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 to price well over a 50 percent chance of one rate hike by the end of year, compared to almost zero percent chance in mid-February.

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

The greenback’s yield allure helped lift the dollar’s index against a basket of six major currencies 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 one percent 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 7.6 percent 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 G-20 to agree to include a warning against “Brexit” in the statement, that appeared to have limited impact. The British currency is down 2.7 percent on month.

Equally under pressure was the South Korean won, which fell to 5-1/2-year lows, shedding 3.1 percent 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 climbed 0.6 percent from their last close to $35.30 per barrel, on course to make their first monthly gains in four months.