Asia shares, pound struggle with no-deal Brexit fears and bond yields near record lows

In Asia, the 10-year Japanese government bond yields stood at minus 0.280 per cent, just above its record low of minus 0.300 touched in 2016.
In Asia, the 10-year Japanese government bond yields stood at minus 0.280 per cent, just above its record low of minus 0.300 touched in 2016.PHOTO: AFP

SYDNEY (BLOOMBERG, REUTERS) - Asian stocks pared earlier losses to trade mostly flat on Thursday (Aug 29) as investors awaited clarity on when the next steps in the United States and China trade negotiations might happen. The dollar held near a nine-month high and Treasury yields declined.

The British pound licked its wounds, dipping 0.1 per cent to US$1.2205 (S$1.6944) after sliding 0.6 per cent the previous day as the most serious UK political crisis in decades deepened when Prime Minister Boris Johnson decided to suspend Britain’s Parliament for more than a month before Brexit.

The move will limit the time opponents have to derail a disorderly Brexit but also increases the chance that Mr Johnson could face a vote of no-confidence in his government, and possibly an election.

“From an economic point of view, actively pursuing a no-deal Brexit through suspending Parliament is tantamount to actively pursuing a recession,” said Ms Seema Shah, Chief Strategist, Principal Global Investors in London.

Concerns about Brexit are already taking a toll on Europe, with the recent export slump in Germany driven mainly by weaker sales to Britain rather than the broader trade war.

Stocks were little changed across Asia having climbed from intraday lows in thin trading. US futures pared losses though European contracts were lower. 

The MSCI Asia Pacific Index fell 0.1 per cent as of 1.24pm in Tokyo where the Topix index was flat.

Australia’s S&P/ASX 200 Index rose 0.1 per cent while South Korea’s Kospi index dropped 0.2 per cent.

Hong Kong’s Hang Seng Index and the Shanghai Composite Index were little changed.

 
 
 

"Stock markets on the other hand are supported in the near-term by hopes of more stimulus, notably from the Federal Reserve and the European Central Bank," Ms Shah said.

The two major central banks are expected to cut rates next month, while many investors believe the Bank of Japan could join the fray if market sentiment weakens further.

The Trump administration on Wednesday made official its extra 5 per cent tariff on US$300 billion in Chinese imports and set collection dates of Sept 1 and Dec 15.

That means products such as smartwatches, Bluetooth headphones, flat panel televisions and many types of footwear will be levied from next month, raising worries about US consumption, one of the few remaining bright spots in the world economy.

The precious metal markets highlighted investors' quest to buy safer assets.

Gold stood at US$1,539 per ounce, near six-year highs of US$1,527.5 set earlier in the week while silver extended its bull run to edge near its 2017 peak, fetching US$18.32 per ounce, having risen nearly 5 per cent so far this week.

In the currency market, major currencies saw limited moves for now, with the yen flat at 106.08 per dollar and the euro fetching US$1.1084.

 
 
 

Investor sentiment remains fragile after US President Donald Trump’s recent pronouncements on trade and as optimism for a resolution becomes more difficult to sustain. Treasury Secretary Steven Mnuchin said US trade officials expect Chinese negotiators to visit Washington, but wouldn’t say whether a previously planned September meeting would take place, while White House trade adviser Peter Navarro played down a quick resolution.

“There’s no appetite to actively trade equities right now,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank in Tokyo. “Investors’ current stance probably is to see through carefully what kind of impact the latest tariff hike has on the global economy.”

Meanwhile, the bond rally continues unabated, with the yield on 30-year US Treasuries sinking to a record low of 1.90 per cent on Wednesday. The yield on 10-year Treasuries fell three basis points to 1.45 per cent on Thursday.

Mr Mnuchin said issuing ultra-long US bonds is “under very serious consideration” in the Trump administration, possibly setting up a move that would mark a historic revamp of the US$16 trillion Treasuries market.

Elsewhere, oil slipped as growth worries outweighed signs that Opec supply cuts are draining US inventories. Asian currencies were little changed after Mr Mnuchin said the US doesn’t intend to intervene on the dollar for now.

West Texas Intermediate crude dipped 0.4 perr cent to at US$55.59 a barrel after rising 1.6 per cent on Wednesday.

Gold rose 0.3 per cent to US$1,543 an ounce.