Asian shares drop, dollar gains as investors await Fed hike signal

Reuters: Asian shares slipped on Monday, while the dollar lifted off last week’s lows on expectations a signal might emerge from a Federal Reserve gathering this week in Jackson Hole, Wyoming, that the US central bank is gearing up to hike interest rates.

Global central bankers will join the annual mountain retreat that opens on Thursday, with Fed Chair Janet Yellen due to speak on Friday.

European markets also looked set for a lower open on Monday, with financial spreadbetter CMC Markets expecting Britain’s FTSE 100 to be off 0.2%, and Germany’s DAX and France’s CAC 40 to start the day down 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.7%, after losing 0.3% last week. Wall Street logged modest losses on Friday, ending nearly flat for the week.

“The market could move either way, but most people want some kind of signal at this point,” said Masashi Oda, general manager of the strategic investment department at Sumitomo Mitsui Trust Asset Management.

The dollar index, which tracks the greenback against a basket of six major rivals, added 0.4% to 94.879, pulling away from last week’s trough of 94.077, which was its lowest mark since 24 June.

The dollar was up 0.6% against its Japanese counterpart at 100.79 yen, while the euro was down 0.3% at $ 1.12830, slipping from last week’s eight-week high of $ 1.1366.

The weaker yen proved a boon for Japan’s Nikkei which closed up 0.3%. It skidded 2.2% last week, as the dollar dipped below 100 yen.

China’s CSI 300 index retreated 0.6% and the Shanghai Composite lost 0.5% as investors took profits. Hong Kong’s Hang Seng slipped 0.4%.

On Sunday, Fed Vice Chairman Stanley Fischer gave a generally upbeat assessment of the US economy’s current strength, saying the job market was close to full strength and still improving.

“Fischer’s comments have raised some expectations in the market, particularly after (New York Fed President William) Dudley’s recent comments,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

Last week, Dudley said a rate hike would be possible in September. Fischer’s remarks fuelled that sense of anticipation, though interest rate futures contracts indicate that the market is pricing in about 50/50 odds of an increase in December.

“While no one seriously expects the Federal Reserve to act on rates next month, some Fed officials seem extremely keen to try and keep the option on the table,” Michael Hewson, chief market strategist at CMC Markets in London, said in a note.

“Attention will be on Ms. Yellen’s speech on Friday, however it doesn’t seem likely that we’ll get any significant clues despite the markets desire to be hand held by the Fed,” he wrote.

Crude oil futures dropped, giving back some of their recent gains that propelled oil into bull market territory, after technicals had it in a bear market earlier this month.

Crude futures have risen almost $ 10 a barrel since early August on speculation that Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries will agree next month to a production freeze deal with non-OPEC producers led by Russia.

But doubts about whether the talks will rein in oversupply are again weighing on prices.

US crude slumped 1.7% to $ 47.68 after gaining 9% last week, rising for a second straight week. Brent crude was 1.9% lower at $ 49.95 a barrel, after gaining 8% last week, rising for a third week in a row.

Gold fell on Monday to its lowest in almost two weeks as the dollar strengthened. Spot gold was down 0.6% at $ 1,333.41 an ounce.