Asian stocks retreat ahead of Fed, BOJ meetings

Asian stocks retreated on Tuesday as investors braced for central bank policy meetings in the United States and Japan this week. European markets were poised to fare better, with financial spreadbetters expecting Britain’s FTSE 100 to start the day up 0.2 per cent, Germany’s DAX to gain 0.2 per cent, and France’s CAC 40 to open flat.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5 per cent, while Japan’s Nikkei closed down 0.5 per cent. Hong Kong’s Hang Seng index slid 0.8 per cent. In China, both the CSI 300 and the Shanghai Composite were down 0.4 per cent. Investors are cautious about buying riskier assets ahead of the US Federal Reserve’s two-day policy meeting starting later on Tuesday.

A surprise drop in new US home sales data for March supported a view of anaemic US economic growth, which may keep the Fed from raising interest rates. In fact, markets see no chance of a rate increase at this week’s meeting and are pricing in just about a one in five chance of a move at the next meeting on June 14-15th.

Yet, Fed officials have repeatedly said a hike in June is on the cards. “Even dovish policy makers such as (Boston Fed President Eric) Rosengren are saying market expectations are too low. And it is not hard to imagine many at the Fed feel current market rates are too low,” said Tomoaki Shishido, fixed income strategist at Nomura Securities. “So the Fed may try to urge markets to price in higher rates. On balance, we are more likely to have a hawkish surprise than a dovish surprise,” he added.

Ahead of the Fed’s meeting, the 10-year US Treasuries yield stood at 1.8986 per cent, easing from a four-week high of 1.914 percent seen on Monday. US stocks fell on Monday as weaker oil prices weighed on energy shares, with the S&P 500 dipping 0.18 per cent to 2,088, slipping further from a 4-1/2-month closing high of 2,102 hit last Wednesday. Oil prices recovered on Tuesday, pushed up by a weaker dollar and a flood of new cash into the market, but analysts warned of further weakness as producers continue to battle for customers.

"The biggest bear risk to the oil market right now is that Iran's ramp-up accelerates and then Saudi Arabia does the same," analysts at Citibank said. US crude rose 0.3 per cent to $42.77 per barrel but remained down 2.2 per cent this week. Brent crude advanced 0.3 per cent to $44.62 per barrel, but is still 1.1 per cent below its closing price on Friday. Both remained off five-month highs hit last week.

On Monday, Saudi Arabia unveiled ambitious plans to transform its oil-dependent economy, centring on a partial privatisation of state oil company Saudi Aramco, which has crude reserves of more than 15 per cent of global oil deposits. The company is expected to be valued at over $2 trillion, more than five times the size of Exxon Mobil, ahead of the sale of less than 5 per cent of it through an initial public offering (IPO).

In the currency market, the dollar retreated against many major currencies while keeping its upper hand against emerging economy currencies. The dollar index, which tracks the greenback against a basket of six major currencies, slid 0.1 per cent to 94.74, extending a 0.3 per cent loss in the previous session. The dollar also slipped to 110.88 yen from three-week high of 111.90 touched early on Monday. The yen weakened sharply on Friday on a report that the BOJ is considering cutting rates at which the central bank lends money to banks. But doubts are growing about how effective such a measure would be in lifting the moribund economy. The Bank of Japan will make its policy announcement on Thursday. The euro held steady at $1.1265. The British pound held near a 10-week high as bets on a Brexit eased after US President Barack Obama voiced his support for Britain's staying in the European Union. The pound last stood at $1.4490 after climbing as high as $1.4520 on Monday, its highest since mid-February.

Reuters