Asian shares and other riskier assets skidded on Tuesday, pressured by slumping crude oil prices and mixed messages from Federal Reserve policymakers on the outlook for US interest rate rises.
Oil prices continued to drop after shedding more than 2 per cent overnight, as investors doubted that oil producing countries would freeze output to address a global glut.
Brent lost 0.6 per cent to $37.48 a barrel after losing 2.5 per cent on Monday. US crude lost nearly 3 per cent overnight, and on Tuesday was down about 0.8 per cent at $35.40.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.3 per cent. Japan’s Nikkei stock index dropped 2.1 per cent to six-week lows, as the perceived safe-haven yen rallied.
“Investors are concerned that Japanese companies are losing their ‘weak-yen appeal’,” said Kazuhiro Takahashi, equity strategist at Daiwa Securities.
“Many people are thinking it would be difficult for exporters to forecast on-year gains in their earnings for this fiscal year.”
US stocks
Commodity-related and industrial shares helped drag down US stock indexes overnight, and US economic data suggested that economic growth remained sluggish in the first quarter.
New orders for manufactured goods dropped in February, as they have for 14 of the past 19 months, while business spending on capital goods was much weaker than initially believed.
That gave investors no reason to believe the US Federal Reserve would raise interest rates anytime soon, in line with the cautious tone Fed chair Janet Yellen sounded last week that contrasted with more hawkish remarks from other central bank policymakers.
Boston Fed Reserve President Eric Rosengren was the latest to fly into the hawkish zone on Monday, calling it “surprising" that futures markets currently price in just one or even no rate hikes this year, which he said could prove “too pessimistic’’.
“Rosengren is usually on the dovish side of the spectrum, highlighting how out of line Fed chair Yellen sounded last week compared to her colleagues,” Sean Callow, senior currency strategist at Westpac, said in a note.
Minneapolis Fed President Neel Kashkari had said on Monday he is “comfortable” with the current stance of U.S. monetary policy, and expects “moderate” economic growth ahead.
BoJ monetary policy
By contrast, Bank of Japan Governor Haruhiko Kuroda on Tuesday stressed his readiness to expand monetary policy further, saying that market moves would be among key factors the central bank will look at in deciding when and how it will next expand stimulus. But his comments did little to stem the yen’s ascent.
The dollar shed about 0.5 per cent to 110.84 yen. A slide below 110.67 yen would take the currency to its lowest since October 2014. The euro gave up about 0.4 per cent to 126.33 yen.
Against the dollar, the euro edged up about 0.1 per cent to $1.1397, within sight of Thursday’s 5-1/2 month peak of $1.1438.
RBA policy meeting
The Australian dollar was down about 0.3 per cent at $0.7574, as investors awaited the outcome of the Reserve Bank of Australia’s latest policy meeting, expected at 0430 GMT.
The RBA is widely expected to keep its cash rate at a record low 2 per cent, where it has stood since May last year. Subdued retail sales and inflation data on Monday suggested the central bank might consider cutting rates in the months ahead.
The Reserve Bank of India is expected to cut its policy interest rate by a quarter percentage point on Tuesday, lowering it to a more than five-year low, while dangling the prospect of another cut later this year if inflation trends stay benign.