MSCI’s broadest index of Asia-Pacific shares outside of Japan was off 1 per cent after dropping 0.9 per cent on Tuesday
Shares in Asia were at a two-week low on Wednesday, oil declined further and the dollar neared four-month highs as coronavirus lockdowns in Europe and potential U.S. tax hikes hit risk appetite, leading to a flight to safety.
MSCI’s broadest index of Asia-Pacific shares outside of Japan was off 1 per cent after dropping 0.9 per cent on Tuesday. It reached 676.46 points, a level last seen on March 9.
The index has had a disappointing run in March after five months of gains in a row, as risk assets were earlier spooked by fears inflation will pick up at a faster-than-expected pace due to successful coronavirus vaccine rollouts and massive U.S. fiscal stimulus.
Japan’s Nikkei tumbled 1.8 per cent while South Korea’s KOSPI dropped 0.5 per cent. Chinese shares were in the red for a second day with the blue-chip CSI300 index down 1.2 per cent. Hong Kong’s Hang Seng shed 1.7 per cent.
On Wall Street overnight, the Dow Jones Industrial Average declined 0.94 per cent, the S&P 500 shed 0.76 per cent and the Nasdaq Composite fell 1.12 per cent.
The combination of increasing lockdowns in much of Europe, and some risk reduction in the EM space, led to a risk-off day where Treasuries rallied on the back of a flight-to-quality bid, John Briggs, global head of strategy for NatWest wrote in a note to clients.
Germany extended its lockdown to April 18. A U.S. health agency said the AstraZeneca Plc vaccine developed with Oxford University may have included outdated information in its data, further fuelling investor worries over the recovery.
So unlike the day before, the reduction in risk appetite was the driver today, which also led to broad based USD strength in a flight-to-quality move, not just against EM but also against most of the majors, Briggs added.
Adding to investor concerns, Treasury Secretary Janet Yellen told Congress on Tuesday the U.S. economy remained at risk.
In the currency market, the dollar index approached a four-month top of 92.506 against a basket of most major currencies.
The euro inched toward a four-month low below US$1.18355, trading as low as US$1.18360, after Germany extended its lockdown. The safe-haven yen was broadly stronger, and the Australian dollar weakened further on Wednesday.
Benchmark 10-year notes rose 19/32 in price to yield 1.6153 per cent after Federal Reserve Chair Jerome Powell downplayed the risk of inflation.
U.S. manufacturing data was due later on Wednesday and Powell was expected to give the same prepared testimony to a Senate banking panel.
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