Asian stocks fall on debt impasse, Kiwi slumps
Asian stocks retreated for a second day as an impasse in negotiations over raising the US debt ceiling hurt risk sentiment. The New Zealand dollar dropped after the central bank signalled its rate-hike cycle has peaked.
The MSCI Asia Pacific Index headed for its lowest close in a week, following losses of more than 1 percent for both the S&P 500 and Nasdaq 100 on Tuesday. Chinese stocks were close to wiping out this year’s gains on persistent concerns over geopolitics and economic growth.
Yields on New Zealand bonds fell and the currency dropped more than 1 percent after the Reserve Bank of New Zealand hiked interest rates to 5,5 percent, in line with projections, while suggesting that rate cuts may begin in late 2024.
The last hike signal by the RBNZ was a “big surprise”, said Jason Wong, a currency strategist at Bank of New Zealand. “Knee-jerk fall seems right as longs get stopped out,” he said on the kiwi.
It was a mixed picture in commodities as gold held Tuesday’s gains amid speculation the debt deadlock will boost demand for haven assets. Oil climbed for a third day after the Saudi energy minister warned short-sellers of pain ahead. Copper declined below US$8,000 per ton for the first time since November on waning economic recovery in China.
Toyota Motor shares bucked the trend in Tokyo, rising as much as 5,5 percent after sliding in the final minute of trading Tuesday. Japanese travel-related and retail companies fell, tracking a slump in European luxury stocks that wiped out more than US$30 billion from the sector.
A gauge of the US dollar was steady after it touched a two-month high on Tuesday. Other major currencies were little changed and the offshore yuan rebounded after slipping to the weakest level this year. The benchmark US 10-year yield was little changed at 3,68 percent.
Progress was limited in US debt negotiations. Speaker Kevin McCarthy left the US Capitol late Tuesday afternoon saying the two parties had yet to reach a deal to avert a first-ever US default, and a top lieutenant said there are no more meetings planned.
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 percent on Tuesday compared to bills maturing May 30 that are yielding about 2 percent.
“The market is now at the point where it wants a little less conversation, a little more action,” Tony Sycamore, a market analyst at IG Australia, wrote in a note. “The continued impasse is now viewed as bad news and overnight generated a traditional risk-off response of lower equities and a higher US dollar.”
Further short-term gains in the greenback will also depend on the release of the Federal Open Market Committee meeting minutes due Wednesday, he said. – Bloomberg