Asian shares subdued after Wall Street retreats, euro slips on Germany coalition breakdown

MSCI's broadest index of Asia-Pacific shares outside Japan was nearly flat in early trade.
MSCI's broadest index of Asia-Pacific shares outside Japan was nearly flat in early trade.PHOTO: AFP

TOKYO (REUTERS) - Asian shares started the week on the back foot on Monday (Nov 20), pressured by a retreat on Wall Street amid tax reform uncertainty while the euro skidded after German coalition talks hit an impasse.

MSCI's broadest index of Asia-Pacific shares outside Japan was nearly flat in early trade.

Australian shares were down 0.2 per cent, while Japan's Nikkei stock average was 0.1 per cent lower.

On Friday, the Dow Jones Industrial Average shed 0.4 per cent, the S&P 500 lost 0.3 per cent and the Nasdaq Composite was down 0.2 per cent.

The US House of Representatives passed their version of a tax overhaul bill that would cut corporate taxes on Thursday, but the Senate continued to wrangle over its rival tax bill, with investors uncertain about whether Congress will be able to reach a compromise.

Against the yen, the US dollar edged up 0.1 per cent to 112.14 .

The dollar index, which tracks the greenback against a basket of six rival currencies, added 0.3 per cent to 93.941 , as the euro fell 0.4 per cent to US$1.1744.

Talks among four German parties seeking to form a coalition government following an election that weakened Chancellor Angela Merkel broke down on Sunday after the pro-business Free Democrats (FDP) pulled out, citing irreconcilable differences.

The decision by the FDP means that Merkel will either seek to form a minority government with the Greens or a new election will be held.

"It's not a total surprise, and this kind of political change will not derail the German economy," said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo. "We are seeing this kind of reaction in the Asian session, but we need to see how Europe will react to this news later."

Position unwinding ahead of this week's Thanksgiving holiday could keep the dollar's gains in check, he added.

Speculators cut their bearish bets on the dollar for the seventh straight week, with the net negative value of positions against the greenback falling to a four-month low, according to calculations by Reuters of data released by the Commodity Futures Trading Commission (CFTC) on Friday.

Lower benchmark US Treasury yields also restrained the dollar, as the yield curve continued to flatten. The 10-year Treasury yield stood at 2.339 per cent in early Asian trade, down from its US close of 2.354 per cent on Friday.

Yields briefly rose on Friday, with those on 2-year paper hitting a fresh nine-year peak, after US housing starts surged 13.7 per cent to their highest since October 2016.

Spot gold was down 0.1 per cent at US$1,292.70 an ounce, after it jumped to a one-month high on Friday as the dollar softened amid tax reform uncertainty.

Crude oil futures were mixed. Brent crude oil dipped 21 cents, or 0.3 per cent, to US$62.51 a barrel, while US crude added 6 cents, or 0.1 per cent, to US$56.61 a barrel.

Oil rebounded more than 2 per cent on Friday after falling for five straight session as a major US crude pipeline was shut and traders anticipated an Opec deal to extend curbs on production.

But crude prices still fell for the first week in six, pressured by rising US output data and doubts that Russia would support an extension of the Opec output cut deal.