Asian Shares, Sterling Falter as Brexit, Growth Anxiety, Sap Confidence

Asian shares wobbled on Friday as investors were reluctant to make big bets ahead of key central bank policy meetings next week against the backdrop of slowing global growth, while sterling extended its slide on a fresh bout of Brexit anxiety.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down just 0.03%, giving up small gains early in the day.

Chinese blue chips were up by less than 0.1% and Hong Kong’s Hang Seng fell 0.4%. Shares in South Korea were also treading water.

Japan’s Nikkei was a touch lower, while the Australian share market was a rare bright spot, adding 0.66% following on gains on Wall Street.

The British pound, which had fallen 0.51% on Thursday after British Prime Minister Boris Johnson’s call for a general election on Dec. 12, extended its slide, edging down 0.07% to $1.2841.

Johnson conceded on Thursday for the first time that he would not meet his “do or die” deadline to leave the European Union next week.

The continued uncertainty over Brexit comes against the backdrop of persistently sluggish global growth.

New orders for U.S.-made capital goods fell more than expected in September and shipments also declined, in a sign that business investment remains soft.

A Reuters poll of economists in recent weeks showed that most think a steeper decline in global growth is more likely than a synchronized recovery, despite central bank easing.

In his last meeting as president of the European Central Bank, Mario Draghi left ECB policy and guidance unchanged, but advised his successor to “never give up” on propping up the eurozone economy in the face of a worsening outlook.

The major focus for investors is next week’s U.S. Federal Reserve policy meeting at which it’s almost certain to cut interest rates for a third time this year.

“It’s less about the Fed going to cut, it’s more about if they’re going to signal the pace, the magnitude of cuts”, said Kay Van-Petersen, global macro strategist at Saxo Bank in Singapore.

Investors will also scrutinize a raft of data that will follow the Fed decision, he said. “It’s really all about next week.”

The Bank of Japan is also set for a two-day meeting ending Oct. 31. The decision is expected to be a close call, though sources told Reuters the BOJ is leaning toward keeping monetary policy steady amid relatively stable markets and a lull in U.S.-China trade tensions.

On Wall Street, strong quarterly results from Microsoft and PayPal helped lift the tech-heavy Nasdaq, which closed up 0.81% at 8,185.80.

The S&P 500 also rose, gaining 0.19% on the day, but the Dow Jones Industrial Average finished 0.11% lower at 26,805.53, weighed down by 3M after the company cut its full-year earnings forecast.

Overall, however, investors remain cautious despite the gains in risk assets in recent weeks, supported by apparent progress in Brexit negotiations and China-U.S. trade talks.

“On the whole, we conclude that we have not entered into a new ‘risk on’ phase from a broader trend perspective just yet,” said George Davis, chief technical strategist at RBC Dominion Securities.

Investors are also nervous ahead of a summit in Chile where U.S. President Donald Trump hopes to finalize a partial trade deal with his Chinese counterpart Xi Jinping.

Rattling confidence was a speech by U.S. Vice President Mike Pence on Thursday, which criticized China’s handling of the Hong Kong protests and its treatment of Muslim Uighurs in the Xinjiang region. Those comments sent the S&P 500 index briefly lower.

The yield on benchmark 10-year Treasury notes fell to 1.7537% on Friday compared with its U.S. close of 1.766% on Thursday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, was at 1.5737%, down from a U.S. close of 1.582%.

Expectations that the Fed will cut rates had helped to lift gold prices, but the precious metal was lower on Friday, losing 0.05% to $1,502.43 per ounce.

The dollar was slightly higher against the yen at 108.65 and the euro was little changed on the day at $1.1101.

The dollar index, which tracks the greenback against a basket of six major rivals, nudged 0.07% higher to 97.701.

Oil prices were lower after rising on Thursday on a surprise drop in U.S. crude inventories and the hopes for market-supporting actions by OPEC and its allies.

West Texas Intermediate (WTI) crude was down 0.57% to $55.91 a barrel, and global benchmark Brent crude dipped 0.55% to $61.33 per barrel.