Asia Market Update

Equity markets across the Asia-Pacific region were down Friday with Japan’s Nikkei hitting a three-month low, weighed by overnight weakness on Wall Street following days of solid gains.

Concerns about a terrorist attack in Barcelona, Spain, that left at least 13 people dead, as well as political uncertainties in the U.S. and simmering geopolitical tensions spurred investors to pull their money from riskier assets.

“We can now see a reversal in fortunes and sentiment deteriorating,” said Chris Weston, chief market strategist at IG Group. Overnight in the U.S., the Dow Jones Industrial Average experienced its biggest decline in three months, while Wall Street’s “fear gauge,” the CBOE Volatility Index, jumped more than 30%.

The Nikkei Stock Average NIK, -1.35% was down 0.9% in early Asian trade, after falling to its lowest level since May. The advance of the yen against the dollar added pressure, with the Japanese currency also hitting multiweek highs against the euro and the British pound, to the detriment of Japanese exporters. The yen was last up 0.2% versus the greenback JPYUSD, +0.216771%  .

Still, analysts expect solid Japanese corporate earnings to limit declines in the local equities market. “Fundamentals aren’t that bad,” said Takashi Hiratsuka, trading group leader at Resona Bank’s asset management division. He noted that some buying was emerging following the early declines Friday, helping the Nikkei bounce back from the session lows.

Elsewhere in Asia, Hong Kong’s Hang Seng Index HSI, -0.71% fell 1.2%, while Australia’s S&P/ASX 200 XJO, -0.71% was down 0.8%, and Korea’s Kospi SEU, -0.12% fell 0.3%.

Financial shares saw some of the region’s steepest declines on Friday. In Tokyo, life insurers led the way down, with Dai-ichi Life Holdings 8750, -3.03%  down 3.1% while T&D Holdings 8795, -3.12% was down 2.8%. In Australia, three of the country’s four biggest banks — Westpac Banking WBC, -1.80%, National Australia Bank NAB, -1.66% and Australia and New Zealand Banking Group ANZ, -1.60% — were down more than 1.2%.

Meanwhile, further chaos in the Trump administration risk hurting market confidence and business sentiment globally, analysts say. Overnight, U.S. government bond prices briefly surged on rumors that the director of the U.S. National Economic Council, Gary Cohn, was resigning after President Donald Trump’s remarks on Charlottesville.

Two White House aides later told The Wall Street Journal that Cohn hasn’t resigned and wasn’t planning to do so, but the market response showed how traders were closely following events at the White House. Prices for most U.S. government bonds have since declined with yields higher in Asian trade.

“It is better to look for opportunities outside of the U.S., where there is better momentum for growth or reform,” given the run up in U.S. valuations following the presidential election, said Paul Flood, a multiasset portfolio manager at Newton Investment Management, which manages 90 billion Australian dollars (US$71 billion) in assets.

In commodities, oil prices were flat in Asian trade after prices snapped a three-day losing streak overnight in the U.S. The market remains concerned about increased U.S. production after data from the Energy Information Administration showed that oil production topped 9.5 million barrels a day. The data offset the positives from a nearly nine million-barrel decline in the amount of stored U.S. crude oil last week.

Source: marketwatch.com