Asia stocks waver as policy uncertainty saps confidence

Asian stocks wavered on Thursday as investors grappled with the apparently diminishing ability of major central banks to stimulate growth, while a tumble in crude oil prices added to the risk-averse mood.

Spreadbetters saw sentiment remaining sombre in the European session, forecasting a lower open for Britain’s FTSE, Germany’s DAX and France’s CAC.

While expectations over a Federal Reserve rate hike at next week's meeting have faded, investors are bracing for a tightening before year-end.

Perceived limits to the extensive monetary easings led by major central banks such as the European Central Bank and the Bank of Japan have also soured broader risk sentiment, driving global debt yields to multi-month highs earlier this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.1 per cent.

Singapore lost 0.4 per cent but Hong Kong’s Hang Seng rose 0.6 per cent in thin trade. Mainland China markets were closed for holidays.

Japan’s Nikkei slid more than 1 per cent to a three-week low.

“Worries that the BOJ is struggling to come up with effective policy are making investors risk averse,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo.

The Fed and the BOJ both hold two-day policy meetings that end next Wednesday, with the BOJ due to comprehensively review its policies.

The BOJ has resorted to a range of unconventional policy steps such as negative interest rates, which some now see as becoming the centrepiece of future monetary easing.

Sources say board members may debate next week whether to cut rates more deeply and make changes to its massive asset-buying programme.

The soggy Asian session followed an uninspiring performance overnight on Wall Street where the Dow lost 0.2 per cent and the S&P 500 shed 0.1 per cent, with uncertainty over future interest rate hikes and lower energy shares weighing.

The Bank of England will be a focus on Thursday. The central bank is seen standing pat after easing policy last month, amid signs it overestimated the initial shock to Britain’s economy from June’s Brexit vote.

“Having just increased stimulus in August, the BoE won’t be eager to add bond purchases or cut interest rates again,” wrote Kathy Lien, managing director of FX Strategy at BK Asset Management.

“Recent data shows how their efforts have paid off so while the BoE will leave the door open to additional stimulus, they should note the improvements in the economy and signal to the market that they are in wait-and-see mode.”

Sterling added to modest gains made overnight and was last up 0.1 per cent at $1.3256.

Elsewhere, the dollar slipped 0.1 per cent to 102.345 yen as the risk off mood benefited the safe-haven Japanese currency. The greenback had briefly risen above 103.00 the previous day on speculation the BOJ would increase stimulus next week.

The euro was steady at $1.1245.

Brent crude limped up 0.6 per cent to $46.11 a barrel after dropping 2.6 per cent on Wednesday when data showing large weekly builds in U.S. petroleum products offset a surprise draw in crude stockpiles.

The 10-year US Treasury note yield stood at 1.706 per cent after sliding overnight to as low as 1.682 per cent.

The rise in the 10-year yield slowed as bond market weakness, which had sent it to a three-month high of 1.752 per cent earlier this week, ebbed slightly.

Long-dated bonds have underperformed for much of the past month along with a steepening yield curve in Japanese government bonds. The BOJ is studying options to steepen the yield curve to help prompt new lending by banks that have been hurt by low long-term rates.

Japan’s 10-year government bond fell a basis point to minus 0.030 per cent after rising close to positive territory earlier in the week.

(Reuters)