Asian stocks struggle as headwinds grow; gold shines

27 Jan, 2016 10:00 am

HONG KONG – Asian stocks struggled to hold early gains on Wednesday as several indicators screamed caution, and a relapse in oil prices made sentiment even more fragile ahead of a Federal Reserve policy statement due later.

Technology giant Apple Inc’s (AAPL.O) forecast of its first revenue drop in 13 years signalled a risk of diminishing corporate profitability and more downgrades.

Despite a weak bounce of 0.6 percent, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was holding near a four-year low hit last week. Australian shares fell 0.8 percent.

With Chinese stocks showing fresh signs of weakness after a 6.4 percent tumble in the previous session, Asia failed to draw much support from an overnight bounce on Wall Street, where upbeat earnings results and a bounce in crude oil pushed up the Dow .DJI 1.8 percent and the S&P 500 .SPX 1.4 percent.

“There are concerns Apple is reaching the limits of iPhone growth and China won’t make up for a slowdown in the rest of the world,” Mark Matthews, head of Asia research and a managing director at Bank Julius Baer & Co. in Singapore wrote in a note.

“Having said that, U.S. stocks are still expensive on the whole. But there are really interesting opportunities elsewhere, in select bombed-out bonds and currencies.”

Benchmark stock indexes in China were trading between 1 to 2 percent lower in opening trades. China’s markets have slumped about 22 percent so far this year, knocking nearly 12 trillion yuan ($1.8 trillion) off the value of the indexes as of Tuesday.

Risk appetite was also subdued as crude oil prices resumed falling and ahead of the closely-watched Fed policy meeting outcome later in the day. Correlations between oil LCOc1 and U.S. stocks .SPX have risen sharply to 0.9 percent.

“The Fed’s assessment of international developments and the implications for the U.S. economy and financial markets should be focus for discussion,” wrote Sean Callow, senior currency strategist at Westpac in Sydney.

“With only a short statement, we expect the Fed to repeat that normalization will proceed as data allows in 2016, though markets will be watching for any shift to a more dovish stance.”

Prospects of the two-day Fed meeting concluding with a dovish statement nudged U.S. Treasury yields down. The benchmark 10-year Treasury note yield US10YT=RR dipped about 2 basis points overnight. Futures were implying roughly two more rate hikes this year, lesser than the Fed’s own projections.

U.S. crude CLc1 surged 3.7 percent on Tuesday after OPEC renewed calls for rival producers to cut supply alongside its members.

But the bounce proved fleeting for the volatile commodity, which struck 13-year lows this month with a China-led global economic slowdown expected to curb demand. U.S. crude CLc1 was last down 2 percent at $30.85 a barrel.

The drop in commodities and the ongoing weakness in stocks burnished gold’s appeal XAU= with the metal trading at a 12-week high.

In currencies, the dollar held on to gains made against the safe-haven yen following the ebb in risk aversion during the U.S. trading session. The greenback stood a shade higher at 118.11 yen JPY= after bouncing overnight from 117.65. The euro was nearly flat at $1.0860 EUR=. The Australian dollar dipped 0.1 percent to $0.7031 AUD=D4. -Reuters

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