Asian shares slip as Fed, Brexit loom

Wednesday, 15 June 2016 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Asian stocks slipped on Tuesday ahead of the U.S. Federal Reserve’s two-day meeting that begins later in the day, amid growing worries this month’s referendum in Britain could see it exit the European Union.

The pound and euro have suffered in recent sessions as economists fear a so-called Brexit would tip Europe back into recession. Voters appear divided ahead of the 23 June referendum, with the “Out” campaign widening its lead over the “In” camp, according to two opinion polls published by ICM on Monday.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.6%, after Wall Street lost ground for the third straight session.

Japan’s Nikkei stock index skidded 1.5% after tumbling 3.5% on Monday.

“Short-term hedge funds have started betting on Brexit, and futures players will likely dominate the market’s move today,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The benchmark 10-year Japanese government bond yield fell to as low as minus-0.175%, a fresh record, before edging back to minus-0.170%.

Uncertainty over this week’s Federal Reserve policy meeting has weighed on markets, though the U.S. central bank is widely expected to leave rates unchanged after the much weaker-than-expected May nonfarm payrolls report.

“The committee was actively preparing markets for a June-July rate hike until the release of the May employment report and is unlikely to give up its tightening bias absent additional information that labour markets are weakening,” analysts at Barclays wrote.

“Nevertheless, the abrupt slowing in employment and falling long-run inflation expectations should raise alarm bells, and risk management concerns suggest delaying action until after the outcome of the UK referendum,” they said. The Bank of England, Swiss National Bank and the Bank of Japan will also meet this week, and are similarly expected to stand pat on policy with the Brexit vote looming. The dollar index, which tracks the greenback against a basket of six rival currencies, edged up slightly to 94.395, moving back toward the overnight high of 94.750. That was its highest since the downbeat U.S. jobs report toppled the dollar on June 3.

The perceived safe-haven yen has benefited from investors’ risk aversion. The dollar was down 0.2% at 105.99 yen, moving back toward Monday’s low of 105.735, its weakest level since early May.Japanese Finance Minister Taro Aso issued a fresh warning against renewed strength in the yen, saying that he would “firmly respond” if rapid and speculative moves persisted in the foreign exchange market.

The euro was slightly lower at $1.1290. Against the yen, it skidded 0.3% to 119.69, moving back toward a more than three-year low plumbed in the previous session.

Sterling also notched a three-year low against the yen on Monday, and was last down 0.8% at 150.35 yen. Against the dollar, the pound dropped 0.6% to $1.4180.