Asian stocks retreated for a second day as negotiations over raising the US debt ceiling remained at an impasse, sapping risk sentiment. The New Zealand dollar dropped after the central bank signaled its rate-hike cycle has peaked.
(Bloomberg) — Asian stocks retreated for a second day as negotiations over raising the US debt ceiling remained at an impasse, sapping risk sentiment. The New Zealand dollar dropped after the central bank signaled its rate-hike cycle has peaked.
The MSCI Asia Pacific Index headed for its lowest close in a week, following losses of more than 1% for both the S&P 500 and Nasdaq 100 on Tuesday. Chinese stocks were close to wiping this year’s gains on persistent concerns over geopolitics and economic growth.
Yields on New Zealand bonds fell and the currency dropped more than 1% after the Reserve Bank of New Zealand hiked interest rates to 5.5%, in line with projections, while suggesting that rate cuts may begin in late 2024.
The last hike signal by the RBNZ was a “big surprise”, said Jason Wong, a currency strategist at Bank of New Zealand. “Knee-jerk fall seems right as longs get stopped out,” he said on the kiwi.
It was a mixed picture in commodities as gold held Tuesday’s gains amid speculation the debt impasse will boost demand for haven assets. Oil climbed for a third day after the Saudi energy minister warned short-sellers of pain ahead. Copper declined below $8,000 per ton for the first time since November on waning economic recovery in China.
Toyota Motor Corp. shares bucked the trend in Tokyo, rising as much as 6.6% after sliding in the final minute of trading Tuesday. Japanese travel-related and retail companies fell, tracking a slump in European luxury stocks that wiped out more than $30 billion from the sector.
Other major currencies were little changed and the offshore yuan slipped to the weakest level this year following the currency’s daily fix. The benchmark US 10-year yield was little changed at 3.68%.
US debt negotiations continued but progress appeared limited, with some House Republicans questioning the urgency of a deadline imposed by Treasury Secretary Janet Yellen for when the government will start missing debt payments.
Higher Premium
Investors have so far been demanding higher premiums to hold US debt, especially those at the highest risk of default, with little time left for politicians to find an agreement. Yields on securities maturing June 6 topped 6% Tuesday compared to bills maturing May 30 that are yielding about 2%.
The debt ceiling impasse will mostly likely be resolved before the deadline, according to JoAnne Feeney, partner at Advisors Capital Management. “Ultimately, what’s going to drive equity valuations from here is more whether we end up in a recession or not at some point this year, either in the US or globally,” she said on Bloomberg Television.
The S&P 500’s drop Tuesday was led by industrials and communication stocks. Lowe’s Cos. cut its sales outlook, citing a slowdown in consumer spending. Broadcom Inc. signed a multibillion-dollar deal with Apple Inc. to develop 5G radio frequency components.
In economic news, US new-home sales unexpectedly rose to a more than one-year high, and US business activity grew in May by the most in over a year.
Minutes due Wednesday from this month’s Federal Open Market Committee meeting will offer traders the latest insights into whether interest rates will be paused at the Fed’s June gathering.
Key events this week:
- Fed issues minutes of May 2-3 policy meeting, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US initial jobless claims, GDP, Thursday
- Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
- Tokyo CPI, Friday
- US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 12:02 p.m. Tokyo time. The S&P 500 fell 1.1%
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 1.3%
- Japan’s Topix index fell 0.5%
- Hong Kong’s Hang Seng Index fell 1.2%
- China’s Shanghai Composite Index fell 0.7%
- Australia’s S&P/ASX 200 Index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0774
- The Japanese yen rose 0.1% to 138.44 per dollar
- The offshore yuan was little changed at 7.0713 per dollar
- The Australian dollar fell 0.2% to $0.6595
- The New Zealand dollar fell 1.1% to 0.6180
Cryptocurrencies
- Bitcoin fell 0.2% to $27,163.95
- Ether fell 0.5% to $1,846.16
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.68%
- Australia’s 10-year yield declined three basis points to 3.62%
Commodities
- West Texas Intermediate crude rose 1.1% to $73.72 a barrel
- Spot gold fell 0.1% to $1,972.94 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Yumi Teso and Matthew Burgess.
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