Most Asian stocks fall as pound has flash crash

HONG KONG/SYDNEY (BLOOMBERG) - Most Asian stocks fell on Friday (Oct 7) after a sudden plunge in the pound rattled investors, while regional bonds extended losses amid speculation US jobs data will bolster the case for an interest-rate increase this year.

About three stocks declined for every two that rose on the MSCI Asia Pacific Index and US equity index futures retreated.

The pound tumbled as much as 6.1 per cent, its biggest intra-day slide since Brexit, before recovering the bulk of its loss amid speculation automated trades may have been a factor.

Sterling's slide "looks like it was an algorithm-driven flash crash," said Angus Nicholson, a markets analyst in Melbourne at IG Ltd. "Given low volumes in the Asian session, it would have forced other algorithms to join in and magnify the fall."

The pound's fall revived memories of June 24, when the outcome of Britain's vote to leave the European Union sent shockwaves through financial markets. wiping more than US$2.5 trillion off the value of global equities in a single day.

The renewed volatility comes at a time of growing expectations that the Federal Reserve will raise borrowing costs before the end of this year. Jobless claims in the US slumped to an almost 40-year low, data showed on Thursday, spurring optimism Friday's payrolls report will reinforce the picture of a strong labor market and economic recovery.

The MSCI Asia Pacific Index was little changed on the day as of 9:30am Tokyo time, leaving it set for a 0.6 per cent weekly advance. Benchmarks declined in Australia, Japan and South Korea. Samsung Electronics Co. gained 0.6 per cent after reporting a higher quarterly operating profit than analysts forecast.

Futures on the S&P 500 Index slipped 0.2 per cent, after the underlying measure added 0.1 per cent on Thursday. Fed officials set to speak on Friday include Cleveland Fed President Loretta Mester, who said this week that the case for a rate increase would still be "compelling" when the Fed Open Market Committee meets Nov. 1-2.

Fed vice chairman Stanley Fischer, governor Lael Brainard and Kansas City Fed president Esther George are also scheduled to appear at the Institute of International Finance's annual meeting in Washington.

The pound was down 1.3 per cent, the biggest loss among major currencies, and IG's Nicholson said it's sudden plunge may have been triggered by a report of French President Hollande's comments on Brexit.

The Financial Times reported that Hollande said the UK must suffer the consequences of leaving the EU in order to save the trading bloc from an existential crisis. The French president, speaking in Paris at a dinner attended by EU officials, urged the bloc to lead tough negotiations with Britain to avoid contagion and protect the fundamental principles of the single market, the report said.

Leaving the EU has been the main topic at the ruling Conservative Party's annual conference this week, where UK Prime Minister Theresa May seemingly moved closer toward a so-called hard Brexit that would restrict access to the EU's single market so that the government can control immigration. Sterling has tumbled more than 4 per cent since May's speech on Sunday, accelerating losses as she was said to take the view that financial services would get no special favors in EU exit talks.