Asian stocks clawed back some of Monday's losses, while US equity-index futures retreated and the dollar fluctuated as markets struggled to digest conflicting signals from the Federal Reserve. Industrial metals fell with oil.
The MSCI Asia Pacific excluding Japan Index rose, buoyed by Hong Kong shares. The Shanghai Composite Index headed for its longest rising streak in a month. US assets were mixed after getting a boost Monday as a fourth Federal Reserve official talked up prospects for higher rates in 2015, just days after the central bank jolted investors by citing global market turmoil and a slowdown in China as reasons for standing pat. Oil dropped. Australian bonds gave back Monday’s gains.
“The Fed’s policy action or inaction is creating quite a bit of confusion in the market,” Bernard Aw, a strategist at IG Asia Pte in Singapore, said by phone. “The Fed is trying to soothe the market but it’s having the opposite effect. There’s a lack of conviction in the markets.”
Fed Bank of Atlanta chief Dennis Lockhart joined Fed presidents from San Francisco, St Louis and Richmond on Monday, saying he remains confident policy will be tightened this year as concerns over turmoil in global markets should prove temporary. Investors now put the probability of a rate rise in 2015 at less than 50 per cent, and will keenly watch a lecture by Fed Chair Janet Yellen later this week for more clues as to when and if borrowing costs will increase this year. Odds of an increase at the Fed's next meeting in October are at 20 per cent, according to fed funds futures, while the probability of an increase at the last meeting of the year, on Dec. 16, is 48.8 per cent, down from 58.7 per cent a week ago.
Stocks
The MSCI Asia Pacific excluding Japan Index added 0.3 per cent by 1:26 p.m. in Hong Kong, with markets in Japan shut through Wednesday because of holidays. The regional gauge tumbled 1.9 per cent Monday. Futures on the SandP 500 slipped 0.2 per cent after the index advanced 0.5 per cent on Monday. The gauge sank 1.9 per cent in the final two days of last week, the steepest slump following a Fed policy meeting in more than a year. Australia’s SandP/ASX 200 Index, which sank more than 2 per cent Monday, regained 0.2 per cent, led by energy producers after oil rebounded. The Kospi index in Seoul rose 1 per cent, while New Zealand’s SandP/NZX 50 Index added 0.2 per cent. “It’s hard to see such gains being sustained amid concerns over Fed policy,” Tim Schroeders, a portfolio manager who helps oversee about $1 billion in equities at Pengana Capital Ltd. in Melbourne, said by phone. “The reluctance of the Fed to move from very accommodative policy settings seems to indicate how fragile the U.S. economy can be, especially if you look outside the labor market.”
A gauge tracking Chinese shares in Hong Kong added 0.7 per cent, while the Shanghai Composite Index climbed 0.9 per cent, extending a 1.9 per cent gain on Monday. The benchmark measure for the mainland’s largest venue is heading for a third straight gain, the longest streak since Aug. 17.
Currencies
The yen was little changed at 120.51 after earlier climbing as much as 0.2 per cent. The Korean won slipped 0.3 per cent, approaching its weakest level in almost a week. The euro was little changed at $1.1187 following a two-day decline of more than 2 per cent. Goldman Sachs Group Inc. said the single currency may slip as much as 10 US cents because the European Central Bank is set to increase stimulus that weakens the currency in order to meet its inflation target.
Bonds yields on 10-year Australian debt climbed by five basis points to 2.76 per cent, while those on New Zealand bonds due in a decade rose four basis points to 3.32 per cent after falling the previous two sessions.
Commodities
West Texas Intermediate crude dropped 1.3 per cent to $46.08 a barrel after rallying 4.5 per cent on Monday. Investors are weighing the potential for an increase in output from Iran with signs U.S. stockpiles are shrinking amid an oversupplied market. Government data on American inventories is due Wednesday. Corn led declines among crop futures, slipping 0.2 per cent with soybeans. Wheat futures due in December -- which surged 2.1 per cent last session on prospects dry weather over the next two weeks will hamper early crop growth in Russia and Ukraine -- fell 0.5 per cent.
Bloomberg
