China’s benchmark stock index skidded to four-year lows on Thursday, dragging Asian equities lower, while the dollar hit a one-week high as minutes of the Federal Reserve’s latest meeting reinforced expectations that U.S. yields will rise further.
The minutes from the Fed’s Sept. 25-26 meeting showed every Fed policymaker backed raising interest rates last month and also generally agreed borrowing costs were set to rise further, despite U.S. President Donald Trump’s view that the Fed was tightening too much.
With very little enthusiasm coming from Asia, financial spreadbetters expect London’s FTSE to open 5 points higher, Frankfurt’s DAX to advance just 6 points, and Paris’s CAC to add 2 points.
MSCI broadest index of Asia-Pacific shares outside Japan fell 0.7 percent.
China’s stock markets were hit hard, with the nation’s premier warning that the economy faces increasing downward pressure, amid worries over the impact of an escalating tariff war with the United States.
China’s benchmark Shanghai Composite Index shed as much as 2.6 percent to hit its lowest level in four years, while the blue-chip CSI 300 index dropped as much as 2.1 percent, not far from its more than two-year low marked previous day.
China’s lending data released on Wednesday gave little reassurance for investors ahead of third quarter gross domestic product data set for release on Friday, that is expected to show the slowest growth since the global financial crisis.
“The overall falling trend of total social financing growth remains unchanged, and the loosening of the credit situation that the market has been waiting for has not yet emerged,” analysts at Ping An Securities in Hong Kong said in a note.
The rest of Asia also struggled, with Hong Kong’s Hang Seng index easing 0.7 percent and Japan’s Nikkei average closing down 0.8 percent.
Data out earlier in the day showed Japan’s exports dropped for the first time since late 2016, hit by declines in shipments to the United States and China.
The U.S. dollar and Treasury yields rose to its highest levels in a week on Wednesday.
The dollar index, which measures its value against six major peers, rose as high as 95.765, its fresh one week-high. 10 year Treasury yield last stood at 3.207 percent, 2.8 basis points higher than the U.S. close.
The euro changed hands at $1.1487, holding steady versus the greenback, after losing 0.65 percent on Wednesday. The euro has lost just under 3 percent of its value versus the dollar over the last three weeks.
Major currencies have shown limited reaction after the U.S. government late on Wednesday refrained from naming China or any other trading partner as a currency manipulator, as it leans on import tariffs to try to cut a trade deficit with China, soothing investor sentiment in Asia.
In its semi-annual currency report, the U.S. Treasury Department said a recent depreciation of China’s yuan currency will likely exacerbate the U.S. trade deficit, but U.S. officials found Beijing appeared to be doing little to directly intervene in the currency’s value.
The yuan was steady at 6.9390 per dollar in the offshore trade, not far off 1-1/2-year low of 6.9587 touched in August.
The onshore yuan fell to as low as 6.9422 at one point, the lowest level since January last year.
But some investors remain wary of a slide towards the psychologically important level of 7 to the dollar.
“The continued risk of a fresh bout of weakness (in the yuan) cannot be ignored” with U.S. Treasury yields beginning to creep higher again, Trump hinting at further tariffs on Chinese goods and the Chinese stocks hitting a multi-year lows, said Simon Derrick, chief currency strategist at BNY Mellon.
In Europe, the European Council meeting kicked off on Wednesday with a roundtable dinner, with British Prime Minister Theresa May’s address ahead of it, though expectations that anything substantial will come out of it have already been fading.
“Hopes for Brexit deal has supported the pound for the past two months. So if there’s no meaningful development, other than longer transition period, the pound could come under short-term selling pressure,” said Tohru Sasaki, head of markets research at JPMorgan Chase Bank in Tokyo.
Oil prices fell on Wednesday, with U.S. futures settling below $70 a barrel for the first time in a month, after U.S. crude stockpiles rose 6.5 million barrels, almost triple what analysts had forecast, while exports dropped. [O/R]
The West Texas Intermediate crude futures and Brent crude futures last traded at $69.77 and $80.06 a barrel, respectively.
Israel Hits Targets Across Gaza After Rocket Attack
Israeli forces have struck targets across the Gaza strip through Tuesday, including the offices of Hamas supreme leader, in response to a surprise rocket attack from the Palestinian territory. The military has bolstered its troops and rocket-defense systems in anticipation of a new round of heavy fighting with the Islamic militant group.
Israel opened public bomb shelters in most major cities and civil defense authorities canceled sports events and public transportation in southern Israel.
Prime Minister Benjamin Netanyahu, who had hurried back to Israel from Washington because of the rocket attack, said Israel will not tolerate this, and that he, personally, would not tolerate it. He said Israel will respond forcefully to the rocket attack he called wanton aggression.
Israeli military said it had retaliated to the latest rocket attacks with fifteen airstrikes. It also said Hamas military sites and those for smaller jihad group had been hit.
Hamas has been leading weekly protests along the Israeli border for the past year in hopes of easing an Israeli-Egyptian blockade, but the demonstrations in which nearly two hundred persons have been killed by Israeli fire, have done little to improve conditions.
Theresa May Loses Control Of Brexit Negotiations, Parliament Takes Over
British Prime Minister, Theresa May, could not be said to have had a good day on Tuesday as she lost control of the Brexit negotiations. The Prime Minister says parliament’s decision to take control of the stalled process of leaving the European Union underscores the need for lawmakers to approve her twice-defeated deal.
The House of Commons voted on Monday to take control of the parliamentary timetable on Wednesday so lawmakers can vote on alternatives to the withdrawal agreement the prime minister negotiated with the EU.
Health secretary, Matt Hancock said on BBC news on Tuesday the government won’t “pre-commit” to accepting the option backed by lawmakers. He wants lawmakers to support the prime minister’s agreement because, as he put it, the best way through the impasse is the one deal the prime minister has already negotiated with the EU.
Tuesday’s events are sure to further complicate the process of Britain leaving the bloc.
UN Says Around 1.85 Million People Affected By Cyclone In Mozambique
The United Nations’ humanitarian agency OCHA has on Tuesday disclosed that close to 1.85 million people have now been affected by Cyclone Idai and its aftermath in Mozambique alone.
“Some will be in critical, life threatening situations. Some will sadly have lost their livelihoods, which whilst an appalling tragedy is not immediately life threatening,” OCHA coordinator Sebastian Rhodes Stampa said.
Relief organizations, including the international federation of the red cross and red crescent societies, say some cases of cholera had already been reported. Meanwhile, in Zimbabwe the country’s entertainment stars have organized a concert to raise funds to help victims. There is growing fear of starvation in communities that have been cut off by smashed bridges or destroyed roads.
The United Nations is also making an emergency appeal for $282 million for the next three months to help Mozambique start recovering.
The UN funding will be used to provide water, sanitation, education and restoring the livelihoods of the hundreds of thousands of displaced people, UN humanitarian chief Mark Lowcock said Monday.
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