Asian stocks drop with European futures; Commodities fall

Asian stocks fell with European equity index futures as commodities sank to levels last seen in May. Malaysia’s ringgit dropped to this month’s low, while the yuan strengthened.

The MSCI Asia Pacific Index retreated from an eight-month high after U.S. shares slid from a record amid a mixed batch of U.S. corporate earnings. Japanese stocks dropped and the yen held gains after central bank Governor Haruhiko Kuroda’s opposition to so-called helicopter money became clear. The ringgit slipped for a fifth day as corruption probes into a Malaysian state investment fund remained in the spotlight and oil traded below $45 a barrel. China issued 30-year bonds at the lowest cost since at least 2008.

Equity markets had been on a roll, gaining more than $4.5 trillion in three weeks on speculation authorities in Asia and Europe will add stimulus to stoke inflation and growth, while positive surprises in U.S. corporate results also supported the rally. The gains drove global stock valuations to a one-year high, leaving the securities vulnerable to disappointments on the policy and earnings fronts. Kuroda, in a BBC Radio interview recorded on June 17 and aired on Thursday, said there was no possibility of introducing helicopter money, which would involve the BOJ’s direct financing of government spending.

Kuroda’s “comments will disappoint investors who had been selling the yen in anticipation of the Bank of Japan announcing helicopter money at its meeting

next week,” said Jasper Lawler, a London-based analyst at CMC Markets Plc. “After the failure of its current quantitative easing program to boost inflation, helicopter money is one of the few remaining tools in the Bank of Japan’s arsenal,” he said, noting that Kuroda may have changed his opinion since he made the remarks on June 17.

Preliminary gauges of this month’s manufacturing activity in the euro area and the U.S. are scheduled for release on Friday, while General Electric Co. and American Airlines Group Inc. are among American companies reporting earnings. Finance chiefs from the Group of 20 nations are scheduled to hold weekend talks in China that are seen covering the weakening outlook for the global economy as well as exchange-rate policies.

Stocks

Futures on the Euro Stoxx 50 Index declined 0.4 percent as of 7:18 a.m. London time. Thales SA, the French maker of defense electronics, reported first-half revenue that beat analysts’ estimates and quarterly service revenue at Vodafone Group Plc was also better than expected, reports showed Friday.

The MSCI Asia Pacific Index was down 0.4 percent, trimming this week’s advance to 0.4 percent. The Topix dropped 0.9 percent, leading declines among regional benchmarks.

Nintendo Co. rose 0.8 percent as Pokemon Go became available in Japan. The stock has almost doubled this month owing to the success of the game.

Futures on the S&P 500 were little changed after the gauge lost 0.4 percent in the last session. So far, 115 of the benchmark’s members have released quarterly results and 81 percent of those beat analysts’ profit estimates. Earnings are nonetheless falling for the fifth quarter in a row, the longest streak since 2009.

Currencies

The yen was little changed at 105.86 per dollar, having surged 1 percent on Thursday as Kuroda’s remarks ruling out the prospect of helicopter money were broadcast. People familiar with the discussions at the central bank have indicated that an increasing number of officials are concerned about the sustainability of the current framework for massive monetary stimulus. Japan’s currency is still down 0.9 percent for the week.

The Australian and New Zealand dollars were headed for weekly declines amid speculation central banks in both countries will cut interest rates from record lows. The Reserve Bank of New Zealand said Thursday further monetary easing is probably needed to boost inflation, while the Reserve Bank of Australia noted on Tuesday that the economy probably cooled last quarter and inflation is set to remain weak. The Aussie and the kiwi retreated at least 1.2 percent this week, the biggest declines among 16 major currencies.

The Bloomberg Dollar Spot Index was poised for a third weekly gain as signs of improvement in the U.S. economy revive expectations for interest-rate increases. A report on Thursday showed sales of previously owned homes climbed to a nine-year high and futures traders are pricing in a 45 percent chance the Federal Reserve will increase borrowing costs by December, up from 12 percent at the start of the month.

Malaysia’s ringgit slid 0.6 percent, taking this week’s loss to about 3 percent. U.S. prosecutors said they plan to seize assets after more than $3.5 billion was misappropriated from 1Malaysia Development Berhad, a state development fund known as 1MDB that was previously headed by Prime Minister Najib Razak. Singapore and Switzerland said they have confiscated assets in connection with the alleged fraud.

The yuan strengthened 0.1 percent, headed for its first weekly gain in seven weeks amid speculation the central bank was seeking to limit losses. Chinese Premier Li Keqiang said Friday the nation’s economy is growing steadily and the exchange rate will be kept stable at a reasonable level.

Commodities

The Bloomberg Commodity Index fell for a sixth day, its longest losing streak in three months.

Oil was set for a weekly decline as the U.S. heads toward the end of its summer-driving season with ample crude and motor fuel stockpiles. The price dropped 0.6 percent to $44.50 a barrel in New York, headed for the lowest close in more than two months.

“It’s an inventory story,” said Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney. “The summer drive-time hasn’t been as strong as some had expected. There’s more supply coming on and there are indications that the strength of the global economy is not there.”

Copper fell 0.4 percent in London, trimming its weekly advance to 0.8 percent. Nickel retreated from an 11-month high once trading got under way on the London Metal Exchange, having been delayed owing to a technical problem. Gold fell 0.3 percent, set for a second weekly loss.

Iron ore in China was headed for the biggest weekly drop in two months, sliding about 7 percent on concern a global supply glut will endure.

Bonds

U.S. Treasuries stabilized this week with the 10-year yield hovering around 1.55 percent. That compares with an all-time low of 1.32 percent on July 7.

Ten-year sovereign bonds in Australia and New Zealand extended their weekly gains on Friday as prospects for monetary easing bolstered demand for the securities. Australia’s yield dropped by seven basis points this week to 1.90 percent and New Zealand’s slid 14 basis points to 2.22percent.

China sold 30-year sovereign debt at a yield of 3.43 percent, the lowest in Bloomberg data going back to 2008. Similar-maturity notes yield 2.27 percent in the U.S. and 0.26 percent in Japan.

Source: Bloomberg