Asian stocks declined with European equity index futures and the dollar pared this week’s advance ahead of a speech by Federal Reserve Chair Janet Yellen that may shed light on the U.S. interest-rate outlook.
The MSCI Asia Pacific Index fell to a two-week low as Japanese equities led losses in the region. The dollar was headed for its first weekly gain versus the yen in more than a month as Fed funds futures indicated a 57 percent chance of a U.S. rate hike this year. American crude held above $47 a barrel amid speculation major producers will agree an output freeze at OPEC talks next month, while zinc climbed to a 15-month high.
Yellen will speak Friday at an annual gathering of central bankers in Jackson Hole, Wyoming, and any comments she makes on the state of the economy and interest rates will be scrutinized by investors. Wagers on higher rates have been boosted this week, even as evidence of uneven global growth casts doubt over the Fed’s willingness to tighten policy amid monetary easing in Asia and Europe. Jackson Hole has been a big market mover only once in the past decade, when former Fed Chairman Ben S. Bernanke signaled the second round of quantitative easing in 2010, according to Bank of America Corp.
“More likely the commentary will, cautiously and implicitly, point towards December” for the next rate increase, said Imre Speizer, a market strategist at Westpac Banking Corp. in Auckland. “That shouldn’t ruffle market pricing for the Fed Funds rate too much, and the dollar may well continue to consolidate.”
Japan’s core consumer prices fell 0.5 percent last month from a year earlier, exceeding the 0.4 percent drop predicted by analysts, data showed Friday. Separate reports showed consumer confidence picked up in Germany and the U.K., while a similar gauge for the U.S. is also scheduled. The U.K. is due to release gross domestic product figures for the second quarter.
The MSCI Asia Pacific Index was down 0.5 percent as of 7:12 a.m. London time, headed for a 0.6 percent weekly loss. Japan’s Topix index lost 1.3 percent amid trading volumes that were about 20 percent below average. Hong Kong’s Hang Seng Index and the Shanghai Composite Index advanced, while benchmarks declined in Australia and South Korea.
“You can’t take on risk ahead of important events” such as Yellen’s speech, said Takashi Ito, a Tokyo-based equity strategist at Nomura Securities Co. “There are two views on what she’ll say; either that she’ll take a step forward in her reference to the rate hike, or she won’t mention it at all. It’s difficult to predict. If she does make more hawkish comments the market could be chaotic in the short term.”
Futures on the Euro Stoxx 50 Index declined 0.2 percent, while contracts on the S&P 500 Index were little changed after the U.S. measure slipped 0.1 percent on Thursday.
The Bloomberg Dollar Spot Index slipped 0.2 percent, halving its weekly advance. Dallas Fed chief Robert Kaplan said Thursday the pace of interest-rate increases in the U.S. should be "patient and gradual" to limit impact on the dollar, while his Kansas City counterpart said it’s already time to move. Futures indicate the probability of a Fed rate hike in September is 32 percent, up from 22 percent a week ago.
“The outcome of the Fed’s Sept. 21 meeting will be largely determined by the tone of Janet Yellen’s speech at Jackson Hole,” said Sean Keane, an Auckland-based analyst at Triple T Consulting and a former head of Asia-Pacific rates trading at Credit Suisse Group AG. If she continues the confident tone of some of her colleagues, “market expectations for a September rate increase will likely move up closer to 60 percent to 70 percent,” he said.
The yen traded at 100.43 per dollar, set for a 0.2 percent weekly decline. The fifth straight month of consumer-price declines underscores the challenges facing the Bank of Japan, which is using unprecedented monetary stimulus as it targets an inflation rate of 2 percent.
The pound was headed for a 1.1 percent weekly advance, supported by signs the British economy is proving resilient in the wake of the Brexit vote. U.K. consumer confidence rose the most in more than three years this month, a report showed Friday. South Africa’s rand tumbled 4.5 percent this week as a police summons for Finance Minister Pravin Gordhan spurred speculation the government was seeking to replace him.
Crude oil was down 0.2 percent at $47.26 a barrel, set for its first weekly loss this month. It gained 1.2 percent in the last session as Saudi Arabia’s energy minister said an output freeze would be positive for the market and Iran confirmed its attendance at an informal meeting of the Organization of Petroleum Exporting Countries in Algiers next month.
Gold advanced 0.2 percent from a one-month low, having fallen this week as speculation built that the U.S. will boost interest rates this year.
Zinc climbed as much as 1.3 percent in London to its highest since May 2015. Morgan Stanley said this week that zinc is its top commodity pick, forecasting that prices may rally further should China’s steel output remain strong, while cautioning the metal may come under pressure if Glencore Plc restarts mines curtailed last year.
U.S. Treasuries due in a decade rose, pushing their yield down by one basis point to 1.56 percent. The two-year yield fell two basis points to 0.77 percent, after climbing three basis points in the last session. A Bank of America Corp. gauge of expected price swings in U.S. sovereign bonds is headed for a second weekly increase as it rebounds from an Aug. 10 level that was the lowest since 2014.
Source : Bloomberg