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Wellington - Asian equities resumed their New Year tumble, wiping out last session’s rebound as the cheapest oil in 12 years and anxiety over an economic slowdown in China unsettled investors, fueling demand for the safest assets.
Japanese stocks sank the most since September, while shares in Shanghai slid below the level reached during August’s market turmoil after a selloff in the US rekindled the global equity rout.
Higher-yielding currencies weakened, while the yen resumed a rally that’s made it the best performer in foreign-exchange markets this year. Treasuries rose and Japan’s 10-year bond yield fell to match a record low as Brent oil extended losses below $30 a barrel. Indonesia’s rupiah weakened after reports of explosions and gunfire in Jakarta.
What seemed like a budding global stock rebound was quashed in the US, where a selloff in consumer and technology shares shaved more than 360 points off the Dow Jones Industrial Average and saw small-cap equities enter a bear market. Traders have been whipsawed in 2016, with equities around the world off to their worst start to a year on record as oil plummets to levels last seen more than a decade ago and China struggles to maintain control over its markets, fueling concern the slowdown in its economy will spread.
“It’s hard to get bullish at this stage,” said Michael McCarthy, chief strategist at CMC Markets in Sydney. “The market focus keeps shifting whenever there’s positive news. We saw very good trade numbers from China yesterday and yet we’ve seen the rebound being short-lived as the focus shifted to commodities. Negative sentiment is dominating.”
Stocks
The MSCI Asia Pacific Index sank 2.2% as of 13:38 Tokyo time, falling for the eighth time in nine days to bring its retreat in 2016 to 9.3%. Japan’s Topix index slid 4%, set for its lowest close since September 29, while stocks in China - the epicenter of this year’s market volatility as well as the ructions last August - fell a second day, with the Shanghai Composite Index slipping 1.1%, poised for its lowest close since December 2014.
“We see sell orders piling up fast though long funds are coming in to buy on dips,” said William Wong, head of sales trading at Shenwan Hongyuan in Hong Kong. “This year’s crash is seriously hurting investors’ confidence after the flip- flop on circuit breakers and the yuan’s decline.”
The S&P/ASX 200 Index in Australia slumped 1.8%, led by technology stocks and utilities, while Hong Kong’s Hang Seng Index lost 1.6%. The Kospi index in Seoul was down 1.5%
S&P 500 futures dropped 0.2% following the index’s 2.5% slide on Wednesday, when the Nasdaq 100 Index had its worst day since August. The Russell 2000 Index of smaller shares slipped 3.3%, bringing its drop from a peak reached in June to 22%.
Losses in US stocks are being exacerbated by forced selling on the part of commodity and other quantitative funds operating in the local futures market, according to JPMorgan Chase & Co. They were forced to rebalance their holdings as equities and bonds slumped.
Currencies
The yen strengthened 0.3% to 117.31 per dollar. The currency, regarded as a haven among many investors, has appreciated 2.5% versus the greenback this year, while the euro has risen 0.3%.
The rupiah dropped 0.8% to 13 938 per dollar as Indonesian police and state news agency Antara reported that at least one explosion followed by gunfire occurred Thursday outside a shopping mall in central Jakarta.
Australia’s dollar slipped 0.4% to 69.29 US cents after a report showed employers cut jobs in December, while the New Zealand currency lost as much as 0.7% to 64.67 cents, the weakest since November 19. The Malaysian ringgit declined 0.6%.
South Korea’s won dropped 0.8% to 1,213.35 per dollar after the central bank kept interest rates on hold. The Bank of England also reviews monetary policy on Thursday.
Bonds
Treasury 10-year notes advanced for a third day, with yields dropping three basis points, or 0.03 percentage point, to 2.07%.
Japan’s 10-year yields fell one basis point to 0.195%, matching a record low set in January 2015. Yields on Australian bonds due in a decade declined eight basis points to 2.68%.
China’s bonds rose as the People’s Bank of China conducted 160 billion yuan ($24bn) of seven-day reverse-repo agreements, the most since February 2015. The yield on the nation’s 10-year bonds fell as much as three basis points to 2.70%, the lowest in data going back to 2007.
“Equities are not performing well, so bonds become the natural investment target,” said Li Liuyang, Shanghai-based chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ. “The PBOC increased reverse repo offerings partly because it may be taking some preemptive measures before next month’s Lunar New Year holidays.”
Commodities
Oil’s almost uninterrupted slide in 2016 has dominated market discourse, with losses amid concern over a global glut exacerbated by the gyrations in China’s stock and currency markets.
Brent fell back below $30 a barrel as Iran moved closer to boosting exports and U.S. crude stockpiles expanded, exacerbating a global glut. The International Atomic Energy Agency is expected to report Friday the Islamic Republic has fulfilled its commitments under July’s nuclear accord with world powers.
Brent futures for February settlement dropped as much as 58 cents to $29.73 a barrel on the London-based ICE Futures Europe exchange. Brent prices on Wednesday fell to $29.96 in intraday trade, the lowest since April 2004. West Texas Intermediate traded at $30.54 a barrel on the New York Mercantile Exchange, up 6 cents.
Gold was little changed in the spot market, at $1 092.55 an ounce after rising 0.7% on Wednesday.
