Business Maverick

Business Maverick

Asian stocks fall on debt impasse; kiwi slumps: markets wrap

Asian stocks fall on debt impasse; kiwi slumps: markets wrap
A pedestrian wearing a protect mask carries CVS Health Corp. shopping bags while walking in the Upper West Side neighborhood of New York, on Wednesday, 23 September 2020. (Photo: Mark Abramson/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 signalled 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 of 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% on Tuesday compared to bills maturing May 30 that are yielding about 2%. 

The debt ceiling impasse will most 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 on 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 on 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. DM

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