What’s set to be the best quarter for Asian stocks since 2012 is ending on a sour note as concern about the financial health of Germany’s biggest lender unnerves investors, fueling demand for haven assets including gold and sovereign bonds. U.S. and European equity index futures fell.
Financial shares were the biggest contributors to the MSCI Asia Pacific Index’s loss after Deutsche Bank AG slid to a record low in New York, weighed down by a Bloomberg News report that some hedge funds have cut their exposure to the lender. Gold climbed for the first time in four days and oil retreated from a one-month high as most industrial metals fell. The yield on benchmark U.S. Treasuries sank to a three-week low.
Deutsche Bank’s woes are unsettling markets just as the risk of an oil price collapse recedes following an OPEC agreement this week to cut crude output. The bank’s shares have more than halved in value this year amid speculation it will struggle to pay legal bills tied to past misconduct, including a request for $14 billion from the U.S. Department of Justice. The International Monetary Fund said in June that the German lender may be the biggest contributor to systemic risk among the largest financial companies.
“Deutsche certainly weighs on sentiment, and the declines are concerning,” said James Woods, a strategist at Rivkin Securities in Sydney. “Being named the number one bank for global systemic risk, it’s entwined with everyone.”
The MSCI Asia Pacific Index dropped 0.9 percent as of 7:09 a.m. London time, trimming its quarterly advanced to 8.6 percent. Financial stocks accounted for more than a quarter of the decline in the benchmark after U.S.-traded shares of Deutsche Bank tumbled 6.7 percent in the last session.
“Following the report about clients moving to reduce exposure on Deutsche Bank, the possibility of other financial institutions facing similar moves has surfaced,” said Hideyuki Ishiguro, a senior strategist at Daiwa Securities Co. in Tokyo. “Investors, especially foreigners, are moving to cut down on positions in the face of risks arising from European banks.”
Japan’s Topix index and Hong Kong’s Hang Seng Index fell 1.5 percent, leading losses among Asian benchmarks. The latter remains the region’s best performer of the quarter with a 12 percent advance. The Shanghai Composite Index rose 0.2 percent before financial markets in mainland China shut next week for National Day holidays.
India’s S&P BSE Sensex index fluctuated following a 1.6 percent drop in the last session that marked its biggest loss since June. The nation said Thursday it had attacked terrorist camps in Pakistan, escalating tensions between the two nuclear-armed neighbors. The countries have fought three wars since they split from each other in 1947.
Futures on the Euro Stoxx 50 Index slid 1.5 percent, while S&P 500 Index contracts were down 0.4 percent. Inflation and unemployment data for the euro area are due Friday and the U.S. has consumer spending figures coming. Hennes & Mauritz AB reported third-quarter earnings short of analysts’ expectations as the Swedish fashion retailer marked down prices and the strong dollar raised garment costs.
Crude oil fell 0.7 percent to $47.49 a barrel in New York, after gaining more than 7 percent over the last two days. While Wednesday’s agreement among Organization of Petroleum Exporting Countries imposed an overall production cap on the group of 14 oil producers, it didn’t assign individual limits — that was left to a committee that will report back at OPEC’s next meeting in November.
“It’s good that OPEC is going to limit production but sticking to the deal is the big headwind facing the organization,” said David Lennox, a resources analyst at Fat Prophets in Sydney. “We’re yet to get the exact details on which countries will contribute the cut, but the Saudis could handle that on their own without too much hassle.”
Most industrial metals retreated, with copper, aluminum and nickel falling by at least 0.4 percent in London. The declines come after the LMEX Metals Index ended Thursday at a one-year high. Gold added 0.3 percent, having dropped 1.3 percent over the last three days.
The U.S. 10-year Treasury yield declined two basis points to 1.55 percent as comparable yields on sovereign debt in Australia and New Zealand also dropped to three-week lows. The rate on similar-maturity notes in Germany fell two basis points to minus 0.14 percent.
The yield on Japanese securities due in a decade increased by one basis point to minus 0.08 percent before the central bank announces details of its bond-buying plans for October. The monthly statement, due at 5 p.m. Tokyo time, will provide some insight into where the authority wants rates to be after it said last week that monetary policy would be used to shape the yield curve.
The cost of insuring corporate and sovereign bonds against default in the Asia-Pacific region was set to rise for a third straight week, the longest streak of increases since June, according to prices from Australia & New Zealand Banking Group Ltd. and data provider CMA.
The Bloomberg Dollar Spot Index rose less than 0.1 percent, after advancing 0.2 percent in the last session. Most emerging-market currencies weakened, led by a 0.4 percent decline in Malaysia’s ringgit.
“The appetite for riskier assets has weakened on worries over euro-zone banks,” said Min Gyeong-won, a currency analyst at NH Futures Co. in Seoul.