Hong Kong - Risk aversion prevailed in markets, spurring slides in Asian shares and European stock index futures as the UK’s upcoming vote on European Union (EU) membership fueled anxiety ahead of central bank meetings in the US and Japan.
The pound fell with oil, while sovereign bonds rallied.
An MSCI gauge of Asia-Pacific equities dropped for a fourth day and sterling resumed losses as new polls indicated more Britons favor leaving the EU than want to remain. The yen strengthened against all 31 major peers and yields on sovereign debt in Australia, Japan and New Zealand sank to records as haven assets attracted investors.
US oil extended declines below $49 a barrel, while gold retreated from near a four-week high.
Gauges of expected price swings in global stocks are surging and institutions including the International Monetary Fund (IMF) have warned of dire fallout if the UK becomes the first country to leave the EU after a June 23 referendum. Monetary policy reviews by the Federal Reserve and Bank of Japan this week are adding to the potential for volatility in financial markets.
“The market is trying to price in Brexit and as a result there’s a flight to safety,” said Kelvin Tay, regional chief investment officer at UBS Group AG’s wealth management business in Singapore. “We’re now moving into a crucial period before the vote itself. Things are just going to get volatile from here on.”
The Fed begins a two-day policy meeting on Tuesday, with the futures market indicating zero chance of an interest-rate hike. The odds of a move by July have dropped to 16%, from 53% at the end of May. About 28% of 40 economists surveyed by Bloomberg predict the BOJ will expand its record monetary stimulus as soon as June 16, while 55% forecast more easing on July 29.
US data on Tuesday are forecast to show retail sales advanced in May for a second month, indicating consumers are becoming less apprehensive about spending. Industrial output figures for the euro area are also due and the UK will report on inflation.
Stocks
Futures on the Euro Stoxx 50 Index dropped 0.8% as of 08:15. Contracts on the UK’s FTSE 100 Index declined 0.5%, after the gauge lost more than 1% in each of the last three trading sessions. French yogurt maker Danone forecast profitability will improve this year as it contains costs to adjust for difficult markets.
The MSCI Asia Pacific Index fell 0.5%, contributing to a four-day loss of 4.2% that marks its steepest slide since February. Australia’s S&P/ASX 200 Index and Japan’s Nikkei 225 Stock Average slumped to two-month lows.
The Nikkei Stock Average Volatility Index climbed to a three-month high after a similar measure for US equities surged 23% on Monday, the most this year.
The Shanghai Composite Index declined 0.2%, after tumbling 3.2% on Monday, ahead of MSCI’s decision on whether to add China’s domestic equities to its global benchmark indices. HSBC Holdings estimates inclusion would initially spur inflows of as much as $30bn.
S&P 500 futures were little changed, after the US benchmark fell 0.8% in the last session. US-listed stock of Baidu, China’s biggest Internet search engine, slid more than 5% in after-market trading as the company cut its sales forecast.
Currencies
The pound weakened 0.8% versus the dollar, approaching a two-month low. Four opinion polls from three separate companies have put the campaign for Britain to leave the EU in front of the ‘Remain’ camp.
The prospect of so-called Brexit actually coming to fruition pushed one-month implied volatility on the UK’s currency to levels last seen in November 2008, at the height of the global financial crisis.
“Risk sentiment has taken a beating with volatility up partly on latest Brexit polls still showing the UK is on course to quit the EU,” said Ray Attrill, co-head of currency strategy at National Australia Bank in Sydney. “Amid all of of this, the yen continues to demonstrate its preeminent safe-haven characteristics.”
Japan’s currency strengthened 0.4%, approaching a one-month high. Against the euro, Japan’s currency strengthened for a sixth day.
China’s yuan weakened in Shanghai to within 0.2% of a five-year low reached in January, when a slide in the currency heightened concern about the health of the nation’s economy and spurred a selloff in global stocks and commodities.
Bonds
Japan’s 10-year bond yield fell to an unprecedented minus 0.175%, Australia’s dropped as low as 2.05% and New Zealand’s slipped below 2.50% for the first time. Similar-maturity US Treasuries were little changed after a five-day rally pushed their yield to 1.61%, the lowest closing level since 2012.
The cost of insuring Asia corporate and sovereign bonds against non-payment rose for a fifth day, the longest run of increases in 10 months, according to prices from Westpac Banking and data provider CMA.
Commodities
The Bloomberg Commodity Index fell 0.6%, retreating for the third time in four days. The gauge has rebounded more than 20% since sinking in January to its lowest level in a quarter century.
West Texas Intermediate crude dropped 1% to $48.38 a barrel, falling for a fourth day ahead of data on US oil production and stockpiling. It reached $51.67 last week, the highest since July 2015.
Gold declined 0.4%, snapping a four-day rally in which it gained more than 3%. Zinc led losses among based metals in London, sliding 1.5% and extending Monday’s retreat from a one-year high. Aluminum lost 0.4% and nickel was down 0.2%.