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Hong Kong - Asian stocks dropped to a one-week low and crude oil extended its slide below $40 a barrel as prospects for a US interest-rate increase spurred a rebound in the dollar.
Raw-materials producers led declines among equities after the Bloomberg Commodity Index tumbled by the most in two months on Wednesday.
Crude retreated after data showed a bigger-than- expected increase in US stockpiles, while iron ore fell for a third day. The dollar gained ground against all 16 major peers, while Malaysia’s ringgit led losses in emerging markets. Australia’s bonds rose after gains in US Treasuries.
After last week halving its projection for interest-rate rises this year to two - a shift that spurred global stock gains and depressed the dollar - the Federal Reserve remains in the spotlight as its own officials talk up the possibility of an increase.
Fed Bank of St. Louis President James Bullard on Wednesday joined a chorus of policy makers floating the possibility of a rate hike as soon as April, helping fuel a rebound in the greenback that’s unsettling the mostly dollar- denominated commodity market.
“Fed officials this week reminded the market that they still want to move forward with the rate hikes,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, where he helps manage about $7.2bn. “Investors have been looking for a reason to pull back and this is one.”
Chinese Premier Li Keqiang reiterated Thursday that growth is the top priority in the world’s second-biggest economy and measures can be introduced if needed to ensure the government’s target is met.
The UK is due to release retail sales data, Italy will report industrial orders figures and Taiwan’s central bank is forecast to lower interest rates for the third quarterly policy meeting in a row. Financial markets across most of Asia, Europe and North America will be closed tomorrow for holidays.
Stocks
The MSCI Asia Pacific Index lost 1% as of 08:18, headed for its lowest close since March 16, as measures of energy and materials stocks dropped more than 1.5%. Benchmarks in Australia, Hong Kong and Singapore were the region’s worst performers.
China Life Insurance, the nation’s largest insurer, dropped 3% in Hong Kong after reporting earnings that fell short of analyst estimates. PetroChina, the country’s biggest oil and gas producer, slipped 4.3% after reporting its lowest annual profit since 1999. Mitsui & Co. dropped 7.5% in Tokyo after the trading company forecast its first loss since it was founded in its modern form in 1947.
Currencies
The Bloomberg Dollar Spot Index rallied for a fifth day, its longest winning streak in two months. Japan’s yen fell 0.4%, the most in almost two weeks.
Bullard said the Fed should consider raising interest rates in April amid a broadly unchanged economic outlook and prospects of inflation and unemployment exceeding targets. San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart made similar comments earlier this week, saying borrowing costs may need to be increased as soon as next month’s policy meeting.
The ringgit dropped 0.9% to 4.03 a dollar, retreating from its highest close since August, as the slide in crude prices dimmed prospects for Malaysia, Asia’s only major net exporter of oil. Falling commodities prices also weighed on Australia’s dollar, which fell as much as 0.6% to a one- week low.
The yuan weakened 0.2% in offshore trading after the People’s Bank of China cut its daily reference rate for the currency by the most in two months. Pacific Investment Management forecast the currency will weaken 7% over the next year, according to a report published on Wednesday.
Commodities
Crude oil fell 0.7% to $39.50 a barrel in New York. It tumbled 4% on Wednesday - the biggest loss in six weeks - after US data showed the nation’s crude stockpiles climbed by the most since December. Inventories rose last week by more than three times the increase projected in a Bloomberg survey.
“This highlights the fact that those expecting a tightening market are still just hoping,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “I agree that we’ll eventually see a tightening, but there’s no evidence it’s happening yet.”
Iron ore sank as much as 5.8% to $49.90 a ton in Singapore. The price has swung wildly in March, ranging from $46.45 to $61.95, as investors sought to gauge conflicting economic signals from China against still-elevated port stockpiles and shifts in the US currency.
“There hasn’t been much improvement in China’s economy and steel mills aren’t keen to purchase iron ore, especially after the price surge,” said Zhao Chaoyue, an analyst at China Merchants Futures in Shenzhen. “The dollar also surged overnight, spurring a sell-off in commodities.”
Gold fell as much as 0.4% to a one-month low of $1 214.99 an ounce.
Bonds
The yield on Australian government bonds due in a decade fell seven basis points to 2.58%, after the rate on similar-maturity US Treasuries dropped six basis points on Wednesday. The Treasury yield was little changed from the last session at 1.88%.
Long-term Japanese bonds retreated, pushing the 40-year yield up by 10 basis points to 0.57%, as the Bank of Japan scaled back its purchases of securities due in a decade or more. Debt due in March 2055 yielded 1.4% at the start of this year.
“The BOJ’s cut in bond-buying is leading to the weakness in super-long maturities,” said Jun Fukashiro, senior fund manager in Tokyo at Sumitomo Mitsui Asset Management. “With yields at these levels, the BOJ is the only buyer.”
