Wednesday 05.30 BST. Financial markets across Asia were struggling for direction as investors weighed the outlook for global central bank stimulus.
The euro was up 0.2 per cent at $1.1223, having trimmed losses sharply late in the previous session after media reports that the European Central Bank was considering tapering its quantitative easing programme before its intended conclusion in March next year.
The reports also prompted benchmark German Bund yields (which move in the opposite direction to price) to close 3.9 basis points higher at minus 0.054 per cent, a two-week high.
Rodrigo Catril, currency strategist at National Australia Bank, said that markets had overreacted to the article, which was published by Bloomberg and cited unnamed sources.
“Discussion on how to go about ending the programme doesn’t necessarily mean it is about to happen,” he said. “The story also notes officials did not exclude the asset purchase programme could still be extended. We would also note that the ECB extended its buying programme from €60bn to €80bn in April and given the anaemic growth in the eurozone and subdued inflation, tapering the programme at this stage wouldn’t make any sense.”
Investors were also pondering the outlook for accommodative monetary policy from the Federal Reserve after Charles Evans, president of the Chicago Fed, said in a speech that “frankly, nobody knows” when the US central bank would raise rates but added he would be “fine” with the Fed raising rates once by the end of this year.
That followed comments on Tuesday from Jeffrey Lacker, president of the Richmond Fed, who said the central bank should head off a likely increase in inflation with a pre-emptive interest rate rise. Both Fed presidents are non-voting members of the policy committee.
Combined with some encouraging manufacturing data on Monday, the prospect of tighter US monetary policy has been given a stir this week. Fed fund futures prices show the chances of an interest rate rise at the Fed’s December meeting have increased to 61.2 per cent from 49.9 per cent a week ago.
The dollar index, a measure of the US currency against a basket of global peers, was down 0.2 per cent at 95.997 but rose a combined three-quarters of a per cent over the first two sessions of this week.
Gold, which is sensitive to monetary policy expectations, was up 0.4 per cent at $1,274.17 an ounce on Wednesday and on track for its first gain in seven sessions. The yellow metal on Tuesday slumped 3.4 per cent — the most in more than a year — to its lowest point since the UK voted to leave the EU.
“General wariness about Fed tightening and less accommodation from the [Bank of Japan] and the ECB is likely to prompt some short-term volatility in Asia interest rates,” said analysts at DBS. “However, with Asia’s external accounts generally stronger (India and Indonesia in particular) than in 2013, the spillover should be contained.”
The yield on 10-year Japanese government bonds rose 0.9 basis points to minus 0.063 per cent, while the yield on equivalent Australian government bonds was up 5.9 basis points at 2.128 per cent a day after the Reserve Bank kept interest rates on hold.
With the dollar in decline and the euro on the ascent, the Japanese yen was 0.1 per cent stronger at ¥102.82 per dollar and facing its first gain in seven sessions. The British pound was fractionally higher at $1.2731, having hit a 31-year low on Tuesday.
The Australian dollar strengthened 0.2 per cent following data showing retail sales grew 0.4 per cent month-on-month in August — double the pace economists expected and improving from zero growth in July.
Australia’s S&P/ASX 200 was down 0.5 per cent, as gold miners tumbled in response to the recent sell-off in the yellow metal.
Japan’s broad Topix benchmark and the Nikkei 225 Average were both up 0.6 per cent, while the Hang Seng in Hong Kong gained 0.5 per cent. Chinese markets remained closed for the Golden Week holiday.
Oil prices were stronger in Asia after a volatile session on Tuesday in which they ended barely changed. Brent crude, the international benchmark, was up 0.9 per cent at $51.30 a barrel while West Texas Intermediate gained 1 per cent to $49.14.
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