Asian shares were volatile on Wednesday as a US Federal Reserve policy decision later in the day and Brexit worries kept investors on edge, though China took in stride MSCI's decision not to include domestic Chinese equities in its indexes.

European shares were set for a positive open, with financial spreadbetters expecting Britain's FTSE 100 to open up 0.2 per cent, Germany's DAX 0.5 per cent and France's CAC 0.4 per cent.

MSCI index

MSCI's broadest index of Asia-Pacific shares outside Japan were unchanged at 0640 GMT, after earlier swinging between gains and losses. The index slid 3.8 per cent over the previous four trading days.

Japan's Nikkei closed up 0.4 per cent.

Mainland Chinese shares, among Asia's worst performers this year, reversed initial losses, as investors, who had expected Chinese A-shares to be included in the emerging market index, pondered the US index provider's decision.

China's CSI 300 index and the Shanghai Composite advanced 1.2 per cent and 1.4 per cent, respectively. Hong Kong's Hang Seng index, which opened lower, gained 0.2 per cent.

“Maybe regional investors have taken the view that the Brexit-driven sell-off was a bit overdone,” said Shane Oliver, head of investment strategy at AMP Capital in Sydney. “Too early to ring the all-clear bell though, as uncertainty regarding Brexit will linger for at least another week yet.”

“On China, I suspect the bounce so far indicates the importance of the MSCI decision was overstated,” he added.

MSCI China decision

MSCI said it decided not to add local Chinese shares to its key emerging market index as Beijing had more work to do in liberalising capital markets.

The Chinese central bank set the yuan midpoint rate at 6.6001, the lowest level against the dollar since January 2011. It eased to 6.6020 per dollar on the open, and was last trading higher at 6.5943.

The offshore yuan held steady at 6.6057 to the dollar after earlier falling to 6.6152, its weakest level since early February as worries about China's economy deepened after data showed growth in China's fixed-asset investment slowed to a 15-year low.

On Wall Street, S&P 500 Index hit a three-week low to end at 2,075.32 on Tuesday, down 0.18 per cent, in its fourth consecutive drop, led by a 1.45 per cent fall in financial shares .

Fed statement

The Federal Reserve concludes its two-day June meeting later in the day. Fed funds futures show investors see almost no chance of the Fed raising rates after the dismal US payrolls report for May.

The 10-year US debt yield fell to a four-month low of 1.567 per cent on Tuesday and last stood at 1.6198 per cent.

Brexit fears

Concerns over a British referendum next week that could see it exit the European Union dwarfed any optimism from solid US retail sales data published on Tuesday.

“The last thing investors needed was further Brexit angst but the continued flow of opinion polls pointing to a possible 'leave' outcome has caused a further reassessment of risk profiling with respect to the outcome of next week's vote," Michael Hewson, chief market analyst at CMC Markets in London, wrote in a note.

“This risk is likely to be at the forefront of today's Federal Open Market Committee rate meeting where US officials look set to keep rates on hold.”

Worries that Brexit will deal a significant blow to the integration of Europe have helped to push up the borrowing costs of European countries with weak credit ratings.

Bond yields

The gap between 10-year Portuguese bond yields and German peers rose to 337 basis points, its widest since February. The spread for Italian and Spanish debt also rose to levels not seen since February.

Investors instead flocked to the safety of German bunds, whose yield fell below zero for the first time in history on Tuesday.

The British pound struggled near its two-month low against the dollar touched on Tuesday. It recovered to $1.4139, compared with Tuesday's low of $1.4091.

Yen vs dollar

The safe-haven Japanese yen also held firm, staying near a six-week high against the dollar and a 3 1/2-year high against the euro.

The yen was changing hands at 106.25 to the dollar, having hit a six-week high of 105.63 on Tuesday. The euro stood at 118.92 yen after falling to a low of 118.48.

Gold, crude oil

Investors also took shelter in gold, which held steady at $1,285.30, near the 5 1/2-week high of $1,289.80 seen overnight.

Brexit fears, combined with a surprise build in US inventories, weighed on oil.

US crude dropped 1.3 per cent to $47.88 a barrel, after earlier touching a 3 1/2-week low of $$47.55.

Brent also slid 1.3 per cent, to $49.18. It earlier fell to a near-two-week low of $48.91.

Related Topics