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Stocks Slide With Oil as Yen Jumps on BOJ’s Inaction

BOJ_Interest_Rates

Stocks slumped with oil and industrial metals after central bank meetings in the U.S. and Japan spurred concern the global economy is losing momentum. The yen soared after the Bank of Japan refrained from easing monetary policy, rallying with gold and sovereign bonds.

The Stoxx Europe 600 Index dropped to a four-month low as the MSCI Asia Pacific Index declined with S&P 500 futures. Japan’s currency surged more than 2 percent to its strongest level in almost two years. The greenback extended Wednesday’s slide after the number of Federal Reserve officials who see just a single rate hike this year rose to six, from one in March. U.S. crude slipped below $48 a barrel as copper, nickel and zinc all lost more than 1 percent. Gold climbed for a seventh day and 10-year bond yields sank to records in Australia, Germany and Japan.

“There were some who had priced in possible easing” by the BOJ, said Norihiro Fujito, a strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “But with the Brexit vote looming next week, it was also possible that any effects from easing would only last a week.”

The Japanese central bank’s decision to leave its record monetary stimulus unchanged came less than 12 hours after the Fed reined in its projection for interest-rate increases over the next two years, with Chair Janet Yellen saying some of the economic forces holding down U.S. borrowing costs may be long-lasting. The two policy reviews worsened investor sentiment at a time when volatility in global markets is surging before a British vote on membership of the European Union.

The odds of the Fed raising key borrowing costs this year are now below 50 percent and Yellen said Wednesday that the U.K.’s June 23 referendum was a factor in the central bank’s decision to hold rates steady. About 28 percent of economists in a Bloomberg survey had forecast additional easing at this BOJ meeting, with 55 percent looking to the next gathering on July 29, when the central bank will update its inflation projections.

Stocks

The Stoxx Europe 600 Index dropped 0.8 percent as of 8:31 a.m. London time, while the MSCI Asia Pacific Index fell 1.1 percent. S&P 500 futures slipped 0.3 percent, after the gauge declined for a fifth day on Wednesday.

Updates on consumer price indexes for the euro area and the U.S. are due Thursday, while the U.K. will release retail sales figures. In addition, euro-area finance ministers will meet in Luxembourg to look at Greece’s progress in meeting its bailout conditions. Oracle Corp. is among companies scheduled to report earnings.

Japan’s Topix slid 2.8 percent , having been 1.2 percent lower ahead of the BOJ’s announcement. Hong Kong’s Hang Seng Index dropped 2 percent, while benchmarks in India, Taiwan and Thailand fell more than 1 percent.

Currencies

The yen jumped 2.1 percent to 103.87 a dollar, strengthening for a fifth day. The currency gained against all 31 major peers after the BOJ refrained from adding any stimulus that could slow its advance. Governor Haruhiko Kuroda said the authority will be monitoring currency movements closely, indicating a risk of intervention.

“The BOJ was facing too much of a headwind in the market,” said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities Co. “Even if the BOJ had come out with additional stimulus expansion, it would probably not be able to fight this headwind, making such steps ineffective. Ineffective easing would just question their credibility, so they probably decided not to act this time.”

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, fell 0.3 percent following a similar decline on Wednesday. Fed officials continue to forecast two 25 basis-point rate hikes this year, after leaving the target range for the benchmark interest rate unchanged at 0.25 percent to 0.5 percent.

The pound weakened 0.3 percent, the Swiss franc strengthened 0.1 percent and Indonesia’s rupiah rose 0.1 percent before central bank policy meetings at which interest rates are forecast to be left unchanged. The kiwi was up 0.1 percent, having earlier risen as much as 0.8 percent after data showed New Zealand’s economy expanded 2.8 percent last quarter from a year earlier, exceeding the 2.6 percent growth projected by analysts.

Commodities

Crude oil dropped 1.3 percent to $47.40 a barrel in New York, sliding for a sixth day amid signs that global supply disruptions are fading. Output in Canada is expected to ramp up this month after wildfires cut production, while Nigerian militants are pursuing peace talks with the government.

Gold rose as much as 1.7 percent and topped $1,300 an ounce for the first time in six weeks as reduced prospects for monetary tightening in the U.S. spurred demand for non-interest-bearing assets. If Britons vote to exit the EU on June 23, the price will jump to $1,350 within a week, according to a Bloomberg survey of 22 traders and analysts. Should a majority choose to remain in the bloc, bullion might slide to $1,250, the survey showed.

“From the cautious tone set by Yellen last night and the Fed, we saw a weaker dollar and stronger gold,” said Ric Spooner, chief analyst at CMC Markets in Sydney. “As well as that, concerns remain about Brexit. The market is looking to the possibility of volatility and safe-haven assets continue to do well.”

Silver jumped 1.3 percent, contributing to a 28 percent gain for the year, after holdings in exchange-traded funds backed by the metal climbed to a record. Copper fell 1.6 percent in London, while nickel lost 1.7 percent.

Bonds

The yield on Australia’s 10-year bonds fell six basis points to 2.01 percent, having earlier dipped below 2 percent for the first time. The rate on similar-maturity U.S. Treasuries fell one basis point to 1.56 percent, headed for the lowest close since August 2012.

Japan’s 10-year yield was minus 0.205 percent, having dropped as low as minus 0.21 percent before the BOJ decision was announced. Germany’s fell below minus 0.03 percent for the first time.

Noble Group Ltd.’s dollar bonds due January 2020 retreated for a fifth day, lifting their yield by 26 basis points to 13.76 percent, after the Hong Kong-based company’s credit rating was cut by S&P Global Ratings for the second time in six months.

Source : Bloomberg