Asia stocks drop, euro volatile on Italian vote

Sydney - Asian equities declined as investors fretted about the impact of American tariffs on the global economy and the euro fluctuated as vote counting began in the Italian election.

Stocks declined from Tokyo to Sydney, with the steepest slide in Hong Kong as US equity futures dropped. The S&P 500 Index staged a late rally on Friday as investors speculated that President Donald Trump’s tough tariff talk won’t translate into the most severe protectionist policies.
The euro traded between gains and losses as Italian exit polls pointed to a hung parliament. The yen edged higher.

There is a "lot of politics this week with Italy elections and NPC in China, also trade measures,” Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, said. “The return of volatility we have seen since the end of January will probably remain."

A combination of a more hawkish tone from the Federal Reserve and Trump’s proposed tariffs riled markets last week. As the initial panic over Trump’s trade talk eased, China said it will host US officials for a new round of dialogue on trade issues.

Long seen as a haven currency during times of turmoil, the yen is once again shaping up as a winner.

Attention now turns to developments in politics in Europe and to jobs data due in the US at the end of the week.

Before the close of polling stations in Italy, the euro strengthened on news from Germany that the Social Democrats backed a government coalition with Angela Merkel’s Christian Democrat-led bloc.

"The euro dollar has been in a $1.21 to $1.25 broad-based range over the past month, that range remains intact," Tony Boyadjian, senior vice president for foreign exchange at Compass Global Markets in Sydney, told Bloomberg Television.

"The polls indicate a hung parliament, it may take a little bit of time before we get this centre-right coalition formed and until that time look for the euro to be bought on the dips."

Elsewhere, China kept its 2018 growth target of around 6.5%. The target was released Monday ahead of Premier Li Keqiang’s report to the National People’s Congress gathering in Beijing.

The economy expanded 6.9% last year, though economists forecast a moderation to 6.5% this year.

Here are some key events coming up this week:

The Chinese People’s Political Consultative Conference runs through March 15 and overlaps with the National People’s Congress meetings in Beijing, through March 20. The Bank of Japan deputy governors’ confirmation hearings will be held on Monday. Reserve Bank of Australia monetary policy decision on Tuesday, with GDP data due on Wednesday.

The European Central Bank isn’t expected to change policy on Thursday, but the Governing Council may discuss a change to pave the way for the end of quantitative easing.  Bank of Japan monetary policy decision and briefing on Friday. US monthly payrolls data.

These are the main moves in markets:

Stocks

The Topix index fell 0.9% and the Nikkei 225 Stock Average lost 0.8% as of 12:34pm in Tokyo. Australia’s S&P/ASX 200 Index fell 0.5% and the Kospi index slid 0.8%.   

Hong Kong’s Hang Seng Index dropped 1.5% and the Shanghai Composite Index was up 0.2% lower. S&P 500 futures contracts decreased 0.5%. The S&P 500 rose 0.5% on Friday, recouping declines of as much as 1.1%.

Currencies

The euro was up less than 0.1% at $1.2323. It climbed as much as 0.4% earlier. The pound was little changed at $1.3790. The yen rose 0.3% to 105.47 per dollar. The Bloomberg Dollar Spot Index was little changed.

Bonds

The yield on 10-year Treasuries fell two basis points to 2.84%. It added five basis points on Friday, when Germany’s 10-year yield added one basis points to 0.65%. The yield on Australia’s 10-year bond climbed one basis point to 2.75%.

Commodities

Gold climbed 0.3% to $1 326.14 an ounce on Friday. West Texas Intermediate crude added 0.4% to $61.52 a barrel.