Yen Rose, Euro Was Little Changed, Dollar Headed For Its First Weekly Loss 

Stocks in Asia declined and the dollar headed for its first weekly loss this month as investors assessed messages from Federal Reserve and European Central Bank meetings this week and concerns about the Republican tax overhaul package lingered.

Hong Kong and Chinese equities paced a region-wide slide, while Tokyo shares fell with the Topix index declining for the first week in four. India’s equity benchmark had the biggest gain in the region and the rupee climbed after a crucial local election. The greenback remained under pressure after Republican Senator Marco Rubio threatened to opposed the tax legislation unless Senate leaders agree to a larger child tax credit. The euro held onto a retreat after the ECB remained cautious about the prospects of reaching its inflation goals, even as it reiterated a pledge to keep stimulus in place.

Uncertainty surrounding the fate of U.S. tax reform is threatening to sour what’s been a stellar run for equities in 2017, as money managers dial back their appetite to take risk amid signs that the eight-year stock rally may not be far from its end. Pacific Investment Management Co. sees the good times rolling on in 2018 as global economies grow in sync, but the bond giant warned investors to brace for a downturn.

ECB President Mario Draghi sounded cautious about the prospect of inflation picking up even as economic growth remains robust. Draghi stopped short of saying the ECB will meet its 2 percent inflation goal in 2020 as he unveiled updated economic projections that showed continued growth over the next three years. The Fed earlier this week raised rates and kept its projection for three hikes next year, while saying it’s closely monitoring inflation developments.

Nader Naeimi, head of dynamic markets at AMP Capital, said that inflation will eventually pick up with global growth, given that there are signs of wages growth in places like the U.S. and Japan.

“2017 was the first year that we’ve had synchronized global growth and inflation is a lagging indicator and now with developed market unemployment rate at a 40-year low, it’s a matter of time,” Naeimi told Bloomberg Television. “Not only investors, but the central banks, will be surprised that inflation will appear sooner than expected. It would be quite complacent to give up on the idea that with growth there will be inflation at some point.”

Confidence among Japan’s big manufacturers has improved to the highest level in a decade as the global economy continues to underpin exports and corporate profits. Sentiment among large manufacturers rose to 25 from 22 three months ago, the highest level since 2006, according to the quarterly Tankan survey released by the Bank of Japan on Friday.

India’s S&P BSE Sensex added 0.8 percent after exit polls showed Prime Minister Narendra Modi’s party looked set to retain power in his home state of Gujarat, a result that’s key to sustaining momentum ahead of India’s national elections early 2019.

Friday’s remaining key event:

• Russia decides on monetary policy. Policy makers will deliver their second straight quarter-point cut on Friday, bringing the benchmark to 8 percent, according to all 33 analysts surveyed by Bloomberg.

And these are the main moves in markets:

Stocks

• The Topix index fell 0.8 percent at the close in Tokyo and was down 0.6 percent over the week. The Nikkei 225 Stock Average declined 0.6 percent.
• Australia’s S&P/ASX 200 Index fell 0.2 percent and the Kospi index rose 0.5 percent.
• Hong Kong’s Hang Seng Index dropped 1.2 percent and the Shanghai Composite Index lost 0.7 percent.
• Futures on the S&P 500 Index rose 0.1 percent. The underlying measure dropped 0.4 percent.
• The MSCI Asia Pacific Index declined 0.4 percent.

Currencies

• The Bloomberg Dollar Spot Index was flat. It’s down 0.4 percent this week.
• The yen rose 0.2 percent to 112.21 per dollar, heading for its strongest week in a month.
• The euro was little changed at $1.1785.
• The pound was steady at $1.3442.
• The Indian rupee gained 0.4 percent versus the dollar to 64.137.
• The Kiwi dollar jumped 0.5 percent to 70.21 per dollar, the highest since October.

Bonds

• The yield on 10-year Treasuries rose one basis point to 2.36 percent.
• Australia’s 10-year yield declined four basis points to 2.52 percent.

Commodities

• West Texas Intermediate crude added 0.2 percent to $57.14 a barrel.
• Gold rose 0.2 percent to $1,255.34 an ounce.

Source: Bloomberg – Dollar Eyes Weekly Drop on Tax; Asia Stocks Fall: Markets Wrap

 

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