Asian stocks slipped on Monday after Wall Street sank amid plunging crude oil prices, keeping investors on edge ahead of an expected US rate rise by the Federal Reserve later in the week.
Encouraging Chinese indicators released over the weekend did little to improve the mood as the backdrop of a shakeout in commodities markets and fitful global growth sapped risk appetite. That underpinned the safe-haven US treasuries and weighed on the dollar.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.9 per cent after touching a 2-1/2-month low.
Japan’s Nikkei fell 2.3 per cent on the yen’s appreciation, while South Korea’s Kospi retreated 1.3 per cent. Australian shares dropped 1.5 percent.
For now, investors looked past better-than-expected Chinese indicators released over the weekend. Data on Saturday showed factory output growth in China accelerated to a five-month high in November, while retail sales rose at an annual 11.2 per cent pace — the strongest this year.
On Friday, the Dow sank 1.8 per cent and the S&P 500 lost 1.9 per cent, as plunging crude prices added to investor nervousness before an expected first US interest rate hike in nearly a decade.
“It’s fair to say that equities are going to be truly tested over the coming four days, and the Fed will be a catalyst for volatility in the lead up to Thursday,’’ wrote Evan Lucas, market strategist at IG in Melbourne.
Fed rate hike
The Federal Reserve is widely expected to opt to hike interest rates at its December 15-16 policy meeting. A rate hike would be a first step towards normalising monetary conditions after an extended period of loose policy, which had helped shore up risk assets.
Oil prices continued their freefall after the International Energy Agency (IEA) warned that global oversupply of crude could worsen next year. US crude was down 0.2 per cent at $35.54 a barrel after touching $35.16 on Friday, the lowest since February 2009.
In currencies, the dollar was little changed at 120.89 yen after shedding 0.5 per cent on Friday, when it stooped to a near 6-week low of 120.585. The euro was steady at $1.0977 after gaining about 0.4 per cent on Friday.
The greenback was hurt as long-dated US Treasury yields slumped to multi-week lows on Friday as the continuing decline in crude prices and weak equities drove investors to safe-haven government debt.
The forex market is also keeping an eye on the Chinese currency after Beijing surprised some by appearing to shift the way it values the yuan, or renminbi, towards a trade-weighted basis instead of exclusively tracking the US dollar.
China had late on Friday launched a new trade-weighted yuan exchange rate index, saying it was intended to discourage investors from exclusively tracking the currency’s fluctuations against the greenback.
The Australian dollar, often used as a proxy for China-related trades, touched a 2-week low of $0.7160 after initially rising to $0.7218 in response to the upbeat China data released over the weekend.