Asian stocks declined Wednesday as negotiations over raising the US debt ceiling remained at an impasse, sapping sentiment for risk taking.
(Bloomberg) — Asian stocks declined Wednesday as negotiations over raising the US debt ceiling remained at an impasse, sapping sentiment for risk taking.
Shares opened lower in Japan, South Korea and Australia while futures for Hong Kong’s benchmark slid following drops of more than 1% for the S&P 500 and Nasdaq 100. Oil extended gains to a third day after the Saudi energy minister warned short-sellers of pain ahead.
Toyota Motor shares bucked the trend in Tokyo, rising as much as 5.5% after plunging in the final minute of trading Tuesday.
Major currencies were little changed in early Asian trading, with the New Zealand dollar in focus ahead of a central bank decision that’s expected to bring a 12th-straight interest rate hike. The currency dropped 0.6% Tuesday amid heightened volatility, and as a gauge of greenback strength touched a two-month high.
New Zealand’s policy-sensitive two-year government bond yield rose more than three basis points to 5.13%, versus the Reserve Bank’s official cash rate of 5.25%. Yields on two-year Treasuries fell nearly five basis points to 4.27% on Wednesday while the benchmark 10-year rate edged up to 3.70.
In the US, debt negotiations continued but progress appeared limited, with some House Republicans questioning the urgency of a deadline imposed by Treasury Secretary Janet Yellen for when the government will start missing debt payments.
“Where is that X-date?” Mary Manning, global portfolio manager at Alphinity Investment Management, said on Bloomberg Television. “Is it actually June 1 or is it some date later in June that has major implications for short-term market movements?”
Investors have so far been demanding higher premiums to hold US debt, especially those at the highest risk of default, with little time left for politicians to find an agreement. Yields on securities maturing June 6 topped 6% Tuesday compared to bills maturing May 30 that are yielding about 2%.
The debt ceiling impasse will mostly likely be resolved before the deadline, according to JoAnne Feeney, partner at Advisors Capital Management. “Ultimately, what’s going to drive equity valuations from here is more whether we end up in a recession or not at some point this year, either in the US or globally,” she said on Bloomberg Television.
The S&P 500’s drop was led by industrials and communication stocks. Lowe’s Cos. cut its sales outlook, citing a slowdown in consumer spending. Broadcom Inc. signed a multibillion-dollar deal with Apple Inc. to develop 5G radio frequency components. And a rout in luxury-good makers including Hermes International wiped out more than $30 billion in value.
In economic news, US new-home sales unexpectedly rose to a more than one-year high, and US business activity grew in May by the most in over a year.
Minutes expected later Wednesday from the last Federal Open Market Committee meeting will offer traders the latest insights into whether interest rates will be paused at the Fed’s next meeting in June.
Key events this week:
- Fed issues minutes of May 2-3 policy meeting, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US initial jobless claims, GDP, Thursday
- Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
- Tokyo CPI, Friday
- US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 9:05 a.m. Tokyo time. The S&P 500 fell 1.1%
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 1.3%
- Japan’s Topix index fell 0.3%
- Australia’s S&P/ASX 200 Index fell 0.3%
- Hong Kong’s Hang Seng futures fell 0.8%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was unchanged at $1.0770
- The Japanese yen was little changed at 138.56 per dollar
- The offshore yuan was little changed at 7.0642 per dollar
- The Australian dollar was little changed at $0.6611
Cryptocurrencies
- Bitcoin was little changed at $27,211.54
- Ether was little changed at $1,852.97
Bonds
- The yield on 10-year Treasuries was little changed at 3.70%
- Australia’s 10-year yield was unchanged at 3.65%
Commodities
- West Texas Intermediate crude rose 1.2% to $73.78 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Emily Graffeo and Cristin Flanagan.
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