Asian shares fall, dollar gains after Fed minutes

By Alun John

HONG KONG (Reuters) – Asian shares fell on Thursday while the dollar reached multi-month highs against peers, after minutes from the U.S. central bank’s last meeting showed the increasing prospect of reduced monetary stimulus this year.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.63%, heading back towards 2021 lows set last month, with Chinese blue chips down 0.21%, Australia falling 0.54% and Hong Kong off 0.45%.

Japan’s Nikkei dropped 0.37%.

Carlos Casanova, senior Asia economist at UBP, said the main drivers for markets this week were weaker economic activity data in China, which had prompted many economists to downgrade forecasts, the situation in Afghanistan and the Fed minutes.

The minutes from the July policy meeting published Wednesday fleshed out the Fed’s thinking on when to taper its monthly bond purchases, and showed officials expected they could ease stimulus this year if the economy continues to improve.

However, officials noted the spread of the COVID-19 Delta variant could temporarily delay the full reopening of the economy and restrain a jobs market that looms large in the Fed’s thinking.

“The minutes show a Fed that is pretty split on most things, but recognises that we are getting much closer to the point of tapering,” wrote ING analysts in a note.

Focus now shifts to the Fed’s annual research conference in Jackson Hole, Wyoming, next week for any read about the central bank’s next steps.

“We will have more visibility about the outlook for the U.S. 10-year yields from September onwards, there are some upside risks that they could go to 1.6% to 1.8% from the current levels, and for Asia Pacific that means outflows,” said Casanova.

U.S. Treasury yields were little changed in Asian trading. Benchmark 10-year notes were last at 1.2617% having risen to as high as 1.300% before the minutes were disclosed.

However, the greenback reacted more strongly with the dollar index, which measures the currency against the euro, yen and four other rivals, climbing to 93.347, its highest since April 1.

Gains were particularly strong versus risk-friendly currencies, and the dollar rose to nine-month highs versus the euro and Australian and New Zealand dollars.

Wall Street closed lower after the minutes with the Dow Jones Industrial Average ending the day down 1.07%, while the S&P 500 lost 1.07% and the Nasdaq Composite fell 0.89%.

The stronger dollar dragged on gold. The spot price dropped 0.15%.

Oil extended losses into a sixth day on Thursday, hovering near three-month lows. ANZ analysts said rising U.S. inventories had fuelled fears of weaker demand amid a spike in COVID-19 cases worldwide.

Brent crude was down 85 cents or 1.3% at $67.38 a barrel, U.S. West Intermediate crude lost 1.4% to $64.53 a barrel.

(Reporting by Alun John in Hong Kong. Additional reporting by Pete Schroeder in Washington; Editing by Sam Holmes)

By Alun John

HONG KONG (Reuters) – Asian shares fell on Thursday while the dollar reached multi-month highs against peers, after minutes from the U.S. central bank’s last meeting showed the increasing prospect of reduced monetary stimulus this year.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.63%, heading back towards 2021 lows set last month, with Chinese blue chips down 0.21%, Australia falling 0.54% and Hong Kong off 0.45%.

Japan’s Nikkei dropped 0.37%.

Carlos Casanova, senior Asia economist at UBP, said the main drivers for markets this week were weaker economic activity data in China, which had prompted many economists to downgrade forecasts, the situation in Afghanistan and the Fed minutes.

The minutes from the July policy meeting published Wednesday fleshed out the Fed’s thinking on when to taper its monthly bond purchases, and showed officials expected they could ease stimulus this year if the economy continues to improve.

However, officials noted the spread of the COVID-19 Delta variant could temporarily delay the full reopening of the economy and restrain a jobs market that looms large in the Fed’s thinking.

“The minutes show a Fed that is pretty split on most things, but recognises that we are getting much closer to the point of tapering,” wrote ING analysts in a note.

Focus now shifts to the Fed’s annual research conference in Jackson Hole, Wyoming, next week for any read about the central bank’s next steps.

“We will have more visibility about the outlook for the U.S. 10-year yields from September onwards, there are some upside risks that they could go to 1.6% to 1.8% from the current levels, and for Asia Pacific that means outflows,” said Casanova.

U.S. Treasury yields were little changed in Asian trading. Benchmark 10-year notes were last at 1.2617% having risen to as high as 1.300% before the minutes were disclosed.

However, the greenback reacted more strongly with the dollar index, which measures the currency against the euro, yen and four other rivals, climbing to 93.347, its highest since April 1.

Gains were particularly strong versus risk-friendly currencies, and the dollar rose to nine-month highs versus the euro and Australian and New Zealand dollars.

Wall Street closed lower after the minutes with the Dow Jones Industrial Average ending the day down 1.07%, while the S&P 500 lost 1.07% and the Nasdaq Composite fell 0.89%.

The stronger dollar dragged on gold. The spot price dropped 0.15%.

Oil extended losses into a sixth day on Thursday, hovering near three-month lows. ANZ analysts said rising U.S. inventories had fuelled fears of weaker demand amid a spike in COVID-19 cases worldwide.

Brent crude was down 85 cents or 1.3% at $67.38 a barrel, U.S. West Intermediate crude lost 1.4% to $64.53 a barrel.

(Reporting by Alun John in Hong Kong. Additional reporting by Pete Schroeder in Washington; Editing by Sam Holmes)