Asia stocks pull back from one-month high as Fed tempers rally

Published: November 09, 2018 11:08:06 | Updated: November 14, 2018 12:37:37

People walk past an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo, Japan, October 12, 2018. Reuters/Toru Hanai

Asian stocks pulled back from a one-month high on Friday as the Federal Reserve appeared poised to deliver another interest rate hike next month, paring gains made earlier this week after US midterm elections triggered a global equities rally.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.1 per cent and was headed for a loss of 1 per cent for the week. On Thursday, the index hit its highest level since Oct. 8.

Australian stocks slipped 0.4 per cent, South Korea's KOSPI .KS11 edged down 0.3 per cent and Japan's Nikkei .N225 shed 0.8 per cent.

Hong Kong's Hang Seng .HSI lost 1.9 per cent and the Shanghai Composite Index .SSEC fell 0.8 per cent.

The Fed held interest rates steady on Thursday but remained on track to continue gradually raising borrowing costs, pointing to healthy economic prospects that were marred only by a dip in the growth of business investment.

The central bank has hiked US interest rates three times this year and is widely expected to do so again next month.

The S&P 500 .SPX lost 0.25 per cent and the Nasdaq .IXIC shed 0.53 per cent on Thursday after the Fed's statement, and energy stocks were the biggest drag on the S&P as US crude oil prices fell.

Wall Street shares spiked midweek following the US midterm elections, on a relief rally as the vote did not deviate significantly from investor expectations.

“The Fed meeting outcome and its statement did not produce major surprises, but it managed to reinforce views that a rate hike is coming in December and this tempered equities,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The Fed statement came after a steep surge in equities and gave the markets an opportunity to sell into the rally.”

In currencies, with Treasury yields pushing up, the dollar stood tall after advancing against its peers overnight, buoyed by Fed’s largely upbeat economic outlook and its intent to keep tightening monetary policy.

The dollar traded at 113.915 yen JPY= after brushing a five-week high of 114.09 overnight.

The euro was steady at $1.1357 EUR= having shed 0.55 per cent the previous day.

Thanks to the greenback’s gains against the euro and yen, the dollar index against a basket of six major currencies .DXY gained 0.75 per cent on Thursday. It last stood little changed at 96.674.

After the Fed statement, the two-year Treasury yield US2YT=RR rose to 2.977 per cent, the highest in 10-1/2 years.

Crude oil prices struggled near eight-month lows as investors focused on swelling global crude supply, which is increasing faster than many had expected.

The market took stock of record US crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019, according to Reuters news agency.

US crude futures CLc1 were down 0.15 per cent at $60.58 per barrel after falling to $60.40 the previous day, the lowest since March 14.

Three-month copper on the London Metal Exchange CMCU3 fell 0.5 per cent to $6,124 a ton.

Pressured by a stronger greenback which makes it more costly for non-US buyers of dollar-denominated commodities, copper fell 2.5 per cent this week, poised for its biggest weekly loss since mid-August.

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