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Wednesday, September 23, 2020

Asia stocks break winning streak, bonds rally on sober Fed

After a slow start, MSCI's broadest index of Asia-Pacific shares outside Japan slipped 1.1%, potentially putting an end to a 10-session winning streak. Japan's Nikkei slid 2.1% as the yen firmed, though Chinese blue chips managed to hold steady.

By: Reuters | Sydney | June 11, 2020 10:42:34 am
GLOBAL MARKETS - Asia shares jump but pandemic hangs heavy over outlook, Asian stock markets, MSCI ex-Japan starts higher on Tuesday, Nikkei rises too, Signs of peaking in coronavirus outbreak helping sentiment, Confidence tempered by fears of global recession, Investors eye Chinese trade data, corporate results, global market news, world market news update, business news india, indian express business news A visitor takes a photo of screens displaying stock indices at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on Monday, March 11, 2018. Photographer: Toru Hanai/Bloomberg

Asian shares swung lower on Thursday while bonds rallied after a downbeat economic outlook from the US Federal Reserve stoked speculation it would have to add to already historic levels of stimulus to underpin a recovery.

After a slow start, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 1.1%, potentially putting an end to a 10-session winning streak.

Japan’s Nikkei slid 2.1% as the yen firmed, though Chinese blue chips managed to hold steady.

E-Mini futures for the S&P 500 fell 1.1%, while EUROSTOXX 50 futures lost 2.2% and FTSE futures 1.6%.

In a challenge to the stock market’s recent optimism, the Fed predicted the US economy would shrink 6.5% in 2020 and unemployment would still be at 9.3% at year’s end.

Data out earlier had also shown core US consumer prices fell for a third straight month in May, the longest stretch of declines on record.

As a result, Fed Chair Jerome Powell said he was “not even thinking about thinking about raising rates”. Instead, he emphasised recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.”

While Powell did not commit to any new action at this time, his focus on downside risk and uncertainty reinforces the message that they will take further action, probably by September,” was the take of economists at JPMorgan.

“Outcome or calendar based guidance looks likely and Powell left the door open for moving to some form of interest rate caps.”

Powell confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia.All of which, saw yields on 10-year Treasuries fall 9 basis points on Wednesday, the biggest daily drop in almost two months. Yields were down at 0.71% on Thursday, a sharp rally from last week’s peak of 0.96%.

The risk of more easing initially had the US dollar under pressure, seeing it touch a three-month low on a basket of currencies at 95.714.

“The Fed’s view – that you’ll be paid almost nothing for holding US dollars until at least 2022 – is never going to be helpful for any currency,” noted analysts at CBA.

The dollar later steadied as risk appetite waned and stocks came off. It was last at 107.03 yen, after hitting a one-month trough at 106.87.

The euro edged back to $1.1346 having hit its highest since mid-March on Wednesday at $1.1422.

The prospect of super-low rates for longer was a boon for gold overnight, leaving it at $1,731 an ounce.

Oil prices turned lower after US data showed crude inventories had risen to record highs.

Brent crude futures fell $1.18 to $40.55 a barrel, while US crude lost $1.32 to $38.28.

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