Asian stocks fall on debt impasse, Kiwi slumps: Markets wrap

Asian stocks retreated for a second day as an impasse in negotiations over raising the US debt ceiling hurt risk sentiment. The New Zealand dollar dropped after the central bank signaled its rate-hike cycle has peaked.

The MSCI Asia Pacific Index headed for its lowest close in a week, following losses of more than 1% for both the S&P 500 and Nasdaq 100 on Tuesday. Chinese stocks were close to wiping out this year’s gains on persistent concerns over geopolitics and economic growth.

Yields on New Zealand bonds fell and the currency dropped more than 1% after the Reserve Bank of New Zealand hiked interest rates to 5.5%, in line with projections, while suggesting that rate cuts may begin in late 2024.

The last hike signal by the RBNZ was a “big surprise”, said Jason Wong, a currency strategist at Bank of New Zealand. “Knee-jerk fall seems right as longs get stopped out,” he said on the kiwi.

It was a mixed picture in commodities as gold held Tuesday’s gains amid speculation the debt deadlock will boost demand for haven assets. Oil climbed for a third day after the Saudi energy minister warned short-sellers of pain ahead. Copper declined below $8,000 per ton for the first time since November on waning economic recovery in China.

Toyota Motor Corp. shares bucked the trend in Tokyo, rising as much as 5.5% after sliding in the final minute of trading Tuesday. Japanese travel-related and retail companies fell, tracking a slump in European luxury stocks that wiped out more than $30 billion from the sector.

A gauge of the US dollar was steady after it touched a two-month high on Tuesday. Other major currencies were little changed and the offshore yuan rebounded after slipping to the weakest level this year. The benchmark US 10-year yield was little changed at 3.68%.

Progress was limited in US debt negotiations. Speaker Kevin McCarthy left the US Capitol late Tuesday afternoon saying the two parties had yet to reach a deal to avert a first-ever US default, and a top lieutenant said there are no more meetings planned.

Investors have so far been demanding higher premiums to hold US debt, especially those at the highest risk of default, with little time left for politicians to find an agreement. Yields on securities maturing June 6 topped 6% Tuesday compared to bills maturing May 30 that are yielding about 2%.

“The market is now at the point where it wants a little less conversation, a little more action,” Tony Sycamore, a market analyst at IG Australia, wrote in a note. “The continued impasse is now viewed as bad news and overnight generated a traditional risk-off response of lower equities and a higher US dollar.”

Further short-term gains in the greenback will also depend on the release of the Federal Open Market Committee meeting minutes due Wednesday, he said.

Key events this week:

• Fed issues minutes of May 2-3 policy meeting, Wednesday
• Bank of England Governor Andrew Bailey speaks, Wednesday
• US initial jobless claims, GDP, Thursday
• Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
• Tokyo CPI, Friday
• US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 1:25 p.m. Tokyo time. The S&P 500 fell 1.1%
• Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 1.3%
• Japan’s Topix index fell 0.3%
• Hong Kong’s Hang Seng Index fell 0.9%
• China’s Shanghai Composite Index fell 0.5%
• Australia’s S&P/ASX 200 Index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0779
• The Japanese yen rose 0.1% to 138.40 per dollar
• The offshore yuan was little changed at 7.0635 per dollar
• The Australian dollar fell 0.1% to $0.6601
• The New Zealand dollar fell 1.2% to 0.6172

Cryptocurrencies

• Bitcoin fell 1.8% to $26,732.15
• Ether fell 1.8% to $1,820.59

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.68%
• Japan’s 10-year yield advanced 0.5 basis point to 0.4%
• Australia’s 10-year yield declined three basis points to 3.62%

Commodities

• West Texas Intermediate crude rose 1.2% to $73.76 a barrel
• Spot gold rose 0.1% to $1 977.81 an ounce

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