Stocks Fall in Asia After Fed Balance-Sheet Signal 

• Bloomberg Dollar index erases Wednesday loss; yen rises again
• Treasury yields steady as pace of U.S. hikes questioned

Stocks slid in Asia and futures in the U.S. ticked lower after minutes from the latest Federal Reserve meeting showed that officials favor shrinking the U.S. central bank’s balance sheet this year.

Japanese equities led the losses, falling the most in two weeks to sit at the lowest in four months, followed by Australian stocks and Chinese shares listed in Hong Kong. Treasury yields were little changed after dropping Wednesday amid speculation Fed balance-sheet reduction could damp the need for interest-rate hikes. While the dollar broadly gained, it was weaker versus the yen for a fifth straight day. Oil, gold and nickel retreated.

The Fed minutes did little to alter market views on the bank’s assessment of the economy, but the discussion on shrinking the $4.5 trillion balance sheet later this yearcaught traders’ attention. The comments underscored prospects for a drop in global liquidity as central banks change tack after injecting record amounts of cash over the past decade.

“The market had been anticipating discussions on the shrinking of the Fed’s balance sheet,” IG Asia Pte Ltd. market strategist Jingyi Pan wrote in a note. “The actual mention of the latter had instead been taken as a cue for a flight to safer assets.”

Strong private payrolls data in the U.S. bolstered the outlook for Friday’s government jobs data, providing more evidence that hiring momentum is accelerating in the world’s largest economy. Concern over the stability of the growth recovery soured sentiment earlier this week though after American automakers reported disappointing sales.

Investors also remain focused on health care and tax policy in Washington, with House Speaker Paul Ryan saying the chances for a vote on a revised repeal of Obamacare this week were dwindling.

“Paul Ryan did not help by highlighting that tax reform may require more time than health care to overhaul, adding pressure on equity markets,” Pan said.

What investors will be looking out for:

• Donald Trump and Xi Jinping begin two-day meeting in Florida today.
  Analyst roundup: Markets may shrug off Trump-Xi talks
• European Central Bank President Mario Draghi speaks at 9 a.m. in Frankfurt. Policy heavyweights including Peter Praet and Vitor Constancio follow later Thursday, before wrapping up with Governing Council members from Ireland and France by Friday.
• India is due to review monetary policy. Here’s a decision-day guide.

Here are the main moves in markets:

Currencies

• The yen rose 0.2 percent to 110.47 per dollar as of 1:23 p.m. in Tokyo, as emerging-market currencies weakened. The Korean won was hardest hit, dropping 0.9 percent — the most since March 9 – to 1,133.73 per dollar.
• The Bloomberg Dollar Spot Index added 0.1 percent following a 0.1 percent drop Wednesday.
• The South African rand continued to fall, albeit at a slower pace, down 0.1 percent to 13.8133.

Stocks

• Japan’s Topix index slid 1.7 percent, the most since March 22. It is at its lowest since Dec. 6.
• The MSCI Asia Pacific Index fell 1 percent to its lowest since March 15. Of the 1,024 index constituents, 734 declined.
• Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 Index both lost 0.6 percent. South Korea’s Kospi index also fell 0.6 percent.
• The Hang Seng China Enterprises Index was down 1 percent. The Shanghai Composite rose 0.1 percent following a 1.5 percent jump Wednesday. Shenzhen’s stock exchange was also higher.
• Futures on the S&P 500 declined 0.4 percent. The underlying gauge dropped 0.3 percent Wednesday, while the Stoxx Europe 600 Index closed little changed.

Bonds

• The yield on 10-year Treasuries was steady at 2.34 percent, down from 2.39 percent at the end of last week.
• The yield on 10-year Australian government bonds declined two basis points to 2.58 percent.

Commodities

• WTI crude fell 0.5 percent to $50.88 a barrel.
• Nickel dropped 0.8 percent, while copper was little changed.
• Gold was down 0.2 percent at $1,253.54 an ounce.

Source: Bloomberg

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