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Wellington - Global equities dropped with US stock index futures, while oil and copper fell as reports showed Japan’s economy and Chinese exports are shrinking. Haven assets including the yen, gold and US Treasuries rallied.
The MSCI Asia Pacific Index retreated from near a two-month high, while the Stoxx Europe 600 Index slid for a second day. Brent crude declined, after closing on Monday above $40 a barrel for the first time this year, as nickel led losses in industrial metals and iron ore tumbled.
Australia’s dollar weakened with South Africa’s rand, while the yen strengthened against all 31 major peers. Gold climbed to a 13-month high as Japan’s 10-year bond yield sank to a record.
Sustained demand for precious metals and sovereign debt highlights a lack of confidence in the rebounds in global stocks and commodities that took hold over the last three weeks, a period in which $4.6trn was added to the value of equities worldwide.
Goldman Sachs Group recommends betting on declines in copper and aluminum prices, while Citigroup said it’s still bearish on iron ore. Japan announced on Tuesday a drop in fourth-quarter gross domestic product and China reported the biggest tumble in exports in almost six years.
“While there’s a likelihood of a pullback in the short term, investors should use this as an opportunity to buy into value plays,” said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors, which oversees about $115bn.
“The tail risk from China continues to reduce. It’s quite clear that they are pretty keen to stabilize growth. That’s positive for commodities, emerging markets and global growth.”
China is using a mix of monetary and fiscal stimulus to support its economy, while the European Central Bank (ECB) is widely expected to deliver a package of easing measures at a March 10 policy meeting to revive euro-area growth and inflation.
German industrial production jumped more than economists forecast in January, a sign that strong domestic demand may be helping to underpin factories even as external growth cools, data showed on Tuesday.
Stocks
The Stoxx Europe 600 Index slid 1.1% as of 10:08, while Standard & Poor’s 500 Index futures declined 0.7%.
The MSCI Asia Pacific Index fell 0.7% as all 10 industry groups retreated. Japan’s Topix dropped 1% and Hong Kong’s Hang Seng Index lost 0.7%. The Shanghai Composite Index gained 0.1%.
Japan’s economy contracted an annualized 1.1% last quarter, and while the drop was less than analysts predicted it underscored growing concern over Prime Minister Shinzo Abe’s reflation programme. China’s exports tumbled 25.4% from a year earlier in dollar terms in February as imports fell for the 16th month in a row.
“The exports data are very, very poor,” said Castor Pang, head of research with Core-Pacific Yamaichi Hong Kong. “The huge decline doesn’t auger well for the stock market."
Currencies
The yen strengthened 0.5% versus the dollar, gaining for a second day. Bank of Japan Governor Haruhiko Kuroda told parliament on Monday he doesn’t think additional stimulus is needed at the present time.
“The yen is gaining partly because Kuroda is denying imminent further easing,” said Shinichiro Kadota, a foreign- exchange strategist at Barclays in Tokyo. “That’s effectively telling speculative players to go ahead and buy the yen.”
China’s yuan climbed 0.18% as the central bank raised its daily reference rate for the currency following Monday data that showed a slide in the nation’s foreign-exchange reserves moderated in February. The Australian and New Zealand dollars fell 0.6%, while the rand slumped 1%.
Commodities
Iron-ore futures on the Singapore Exchange fell 5.2%, after a record 19% jump on Monday. Citigroup said it’s still bearish as supply and demand fundamentals remain weak, while Axiom Capital Management said the price surge was probably just a “blip”.
Copper fell 0.8% in London, trimming this month’s advance to 5.7%. Nickel slid 2.7%, retreating from its highest close since November, and aluminum lost 0.2%. Goldman Sachs reiterated its view that the structural drivers for last year’s slump in industrial metals prices remain intact, predicting drops of as much as 20% for copper and aluminum over the next 12 months.
Gold advanced 0.6% to $1 274.32 an ounce, headed for its highest close in more than a year. The precious metal last week entered a bull market - commonly defined as a 20% advance from the most recent low - and platinum and palladium followed suit on Monday. Platinum rose 0.1% on Tuesday, while palladium dropped 0.9%.
Brent crude fell 1% in London to $40.45 a barrel, after surging 5.5% on Monday. It’s advanced more than 40% since slumping to a 12-year low in January amid speculation a proposal by major producers to freeze production will trim a global glut. Data on Wednesday is forecast to show US stockpiles increased last week to the highest level since 1930.
Bonds
The yield on 10-year US Treasuries fell five basis points to 1.86%, retreating from a one-month high. The rate on similar-maturity Japanese debt dropped as much as 5.5 basis points to an unprecedented minus 0.1%. The Asian nation’s government sold 30-year securities with a record-low 0.8% coupon on Tuesday.
Pacific Investment Management recommends investors move out of government bonds and into corporate credit because the US will avoid a recession. With sovereign notes in Japan and Germany offering negative yields, and equity valuations stretched, it says high-quality company debt, junk bonds and bank loans offer a better risk-adjusted alternative.
