Caution prevails for Asia stocks, iron ore drops

Sydney - Investors adopted a cautious tone at the end of a positive week for Asian stocks. Raw-materials shares slumped, while gold headed for a fourth weekly increase.

The dollar was mixed against major currencies after weakening on Thursday on Treasury Secretary Steven Mnuchin’s statement that fiscal stimulus effects on the economy this year may be limited.

Hong Kong stocks fell for a second day, while Tokyo shares dropped even as the yen retreated after a two-day gain.

Commodity producers dragged equities lower after iron ore tumbled. Oil was poised for its best week of the year.

A fifth weekly gain for Asian shares that’s helped push the value of global equities above $70trn is losing momentum as money managers grapple with political uncertainty and the Federal Reserve’s schedule for lifting borrowing costs.

Fed Bank of Dallas President Robert Kaplan urged his colleagues at the US central bank to seize opportunities to raise interest rates, even as he said they should keep their options open ahead of next month’s policy meeting.

"There are those out there thinking, 'Well, markets have had such a big run-up, it’s time to take a bit of money off the table,"' said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which managed about $120bn as of December 2016.

"It wouldn’t surprise me to see a bit of consolidation or correction, and maybe we’re starting to see signs of that."

Markets from stocks to currencies have been subjected to intraday fluctuations this week as investors hang on each word from central bank officials and politicians.

In addition to concerns about interest rates and Donald Trump’s economic policies, traders are also watching developments in French presidential elections and the UK’s Brexit plans.

"As the market waits for details on US tax cuts, it’s more likely that officials’ comments affect the market," said Kenji Ueno, portfolio manager at Sompo Japan Nipponkoa Asset Management.

"US fiscal policy is moving toward expansion, but the administration may be trying to cool off some of the expectation.”

What are traders are watching for:

Investors will be looking for any policy details when Trump addresses Congress next week. Billionaire Warren Buffett releases his annual letter to shareholders with Berkshire Hathaway Inc.’s earnings over the weekend.

Legislators in the UK will consider changes to the Brexit bill next Monday and on Wednesday that may address the rights of EU citizens in Britain and give parliament a binding vote on the final deal.
Here are the main moves in markets:

Currencies

The yen dropped 0.2% to 112.80 per dollar as of 4 in Tokyo, after rising 0.6% on Thursday. The currency is little changed for the week.  The Bloomberg Dollar Spot Index dropped less than 0.1% after falling 0.3% in the previous session.  

The South Korean won climbed 0.5%, rising for a fourth day in the longest streak of gains since August.

The Australian dollar was little changed. Central bank Governor Philip Lowe said he expects "a period of stability" in interest rates and suggested further cuts could push already high household debt to "dangerous" levels.

Stocks

The MSCI Asia Pacific Index fell 0.5%, paring this week’s advance to 0.5%. Japan’s Topix index lost 0.4%. The gauge rose 0.4% for the week. Australia’s S&P/ASX 200 Index retreated 0.8%. BHP Billiton declined 5.9% for the week in Sydney, the biggest loss since May.

Hong Kong’s Hang Seng dropped 0.4%, retreating for a second day after reaching the highest since August 2015.

The Hang Seng China Enterprises Index lost 0.9%, paring the week’s advance. Futures on the S&P 500 fell 0.1%. The index rose less than 0.1% on Thursday, while the Dow posted a 10th day of gains, its longest streak of record closes since 1987.

Baidu surged in after-hours trading in New York as profit topped estimates.

Commodities

Gold added 0.3% to $1 253.22 an ounce after rising 1% on Thursday. The metal is up 1.5% for the week, heading for the highest closing level since November. Iron ore tumbled 4.2%, and is poised for a weekly loss.

After a surprise rally last year, the commodity roared into 2017 on optimism that Chinese demand would prove robust. This week has seen a series of warnings the gains may be overextended.

Oil slipped 0.2% to $54.36, after jumping 1.6% in the previous session as government data showed a smaller-than-expected increase in crude inventories. Crude is trading near the highest level since July 2015.

Bonds

Yields on 10-year Treasuries were little changed at 2.38%, after dropping four basis points on Thursday.  Australia 10-year yields fell six basis points to 2.73%.