Asia Stocks Subdued, Dollar Slips on U.S. Election Tension

SYDNEY (Reuters) —
Investors look at an electronic screen showing the stock information at a brokerage house in Hangzhou, Zhejiang Province, China, January 15, 2016. China stocks dropped more than 3 percent on Friday, capping another tumultuous week in which the Shanghai Composite index tried and failed to stay above lows hit during last year's summer crisis. REUTERS/Stringer ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS. CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA.
Investors look at an electronic screen showing the stock information at a brokerage house in Hangzhou, Zhejiang Province, China. (Reuters/Stringer)

Asia stocks joined the U.S. dollar on the defensive on Thursday as the nail-biting U.S. presidential race saw the S&P 500 suffer its longest losing streak in five years as investors sailed to safer harbors.

Tensions were aggravated by media reports that some agents at the FBI had wanted to press ahead with an investigation of the Clinton Foundation, but senior officials at the agency and at the Justice Department did not think much of the evidence.

Dealers said Asian markets were wary of reading too much into the reports, but there was some precautionary selling of dollars.

The U.S. currency slipped 0.6 percent to 102.71 yen, while the euro edged up 0.2 percent to $1.1116.

The dollar in turn added 0.6 percent on the Mexican peso, which acts as a bellwether for investor angst over the risk of a victory by Republican Donald Trump. Trump’s radical positions on Mexican migration and trade could severely disadvantage the U.S.’s southern neighbor if he wins.

Sovereign bonds, gold and the Swiss franc were also in favor, and even the prospect of a December rate increase from the Federal Reserve could not steady the dollar.

“We are not quite at the point where we need to think about canned food and underground wood bunkers, but we are being schooled in understanding the dynamics politics plays on financial markets,” said Chris Weston, chief market strategist at broker IG Research.

“Despite all the thoughts about central bank policy changes, improving inflation trends and ever-changing economics, politics dominates markets above all else.”

Emini futures for the S&P 500 slipped 0.3 percent, while Treasury bond futures gained seven ticks and European bourses were expected to open modestly lower.

Most regional markets steadied after a brief wobble and MSCI’s broadest index of Asia-Pacific shares outside Japan was flat by midday. Shanghai added 0.5 percent.

Tokyo was off on holiday, which was likely just as well, as the Nikkei would have been hurt by the rising yen.

Narrowing polls had already led markets to price in more risk that Trump might defeat his Democratic rival Hillary Clinton, perhaps remembering the turmoil that followed the surprise Brexit vote.

An average of polls compiled by the RealClearPolitics site showed Clinton just 1.7 percent ahead of Trump nationally on Wednesday. A Reuters/Ipsos daily tracking poll released late the same day showed Clinton ahead by 6 percentage points among likely voters.

Investors generally view Clinton as a known entity, but there is deep uncertainty about what a Trump win might mean for U.S. economic policy, free trade and geopolitics.

The baleful effect was all too apparent on Wall Street where the Dow ended Wednesday down 0.43 percent. The S&P 500 lost 0.65 percent and the Nasdaq 0.93 percent.

Another session of losses for the S&P would match the record for consecutive down days set in 2008.

Politics also overshadowed the Fed’s November policy meeting where it kept rates steady as expected and opened the door a little wider to a rate rise next month.

“Barring a shock to the global economy and/or upheaval in financial markets, we continue to anticipate a 25 basis point rate hike at the 14 December meeting,” said Peter Dragicevich, a senior currency and rates strategist at CBA.

“We, and the FOMC, are looking for the tightening cycle to continue to be slow and limited,” he added, predicting just two more rate increases over 2017.

In commodity markets, spot gold was firm at $1,304.10 an ounce, having hit its highest since Oct. 4.

Oil pared some losses after sliding on Wednesday when data showed weekly U.S. crude inventories rose 14.4 million barrels, far above forecasts.

Helped by the weaker dollar, U.S. crude bounced 40 cents to $45.74 a barrel, though that followed a near 3 percent drop overnight. Brent added 54 cents to $47.40.


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