Asia Pacific Market: Stocks mostly down on Tuesday as Fed rate hike woes looms

Headline equities of the Asia Pacific market closed mostly down on Tuesday, 24 May 2016, following weak lead from Wall Street overnight and as speculation mounted that the US Federal Reserve will raise interest rates as early as next month. Investors in emerging markets are worried that higher interest rates in the US will drain liquidity from emerging markets and redirect it to developed economies. MSCI's broadest index of Asia-Pacific shares outside Japan fell as much as 0.6 percent, hovering near its two-and-a-half-month low hit on May 19.

US stocks finished lower yesterday, 23 May 2016, as the prospect that interest rates might rise as soon as next month weighed on utilities shares. Philadelphia Fed President Patrick Harker said yesterday, 23 May 2016, that he could see two to three rate hikes in calendar year 2016 and that if the US economy shows sufficient strength, a June increase would be appropriate. St. Louis Fed President James Bullard said holding rates too low for too long could cause financial instability. San Francisco Fed President John Williams said on Sunday, 22 May 2016, that the presidential election in the US this year wouldn't prevent the central bank from raising interest rates and that a hike in interest rate in June remains likely.

 

The minutes from the US Federal Reserve's April policy meeting released last week showed that Fed policy setters discussed the possibility of a June rate increase if the economy continued to strengthen. The Federal Open Market Committee next undertakes monetary policy review on 14-15 June 2016. The US central bank had lifted rates in December 2015 for the first time in nearly a decade.

Investors are awaiting for Fed Chair Janet Yellen's speech this week, including Fed Chair Janet Yellen at a panel event hosted by Harvard University on Friday, to gauge how soon they will raise interest rates.

Investors remained skeptical the U.S. Federal Reserve will raise short-term interest rates as soon as June, even after hawkish comments by three Fed officials overnight. A prevailing reluctance to make big bets before the Fed's policy meeting next month has kept trading quiet.

Investors are also likely to focus on the second estimate of U.S. first-quarter growth due out on Friday and data on new home sales, durable goods orders and consumer sentiment due this week.

Among Asian bourses

Australia Market ends down

Australian share market finished session lower, dragged down by losses in the materials and resources and energy stocks amid slump in commodity prices overnight. At close of trade, the benchmark S&P/ASX 200 index declined 23.34 points, or 0.44%, to 5295.60. The broader All Ordinaries fell 322.98 points, or 0.43%, to 5361.90. Falling stocks outnumbered advancing ones on the Australia Stock Exchange by 574 to 412 and 358 ended unchanged. The S&P/ASX 200 VIX, which measures the implied volatility of S&P/ASX 200 options, was down 0.61% to 17.664.

Shares of energy and mining companies were down. Pure-play iron ore producer Fortescue Metals dropped 1.89% to A$2.85 and Atlas Iron 5.8% to A$26.50. BlueScope Steel eased by 3% to A$6.09 after rising 7% on Monday after saying it expects full year profit to be 29% better than expected. Oil explorer Woodside Petroleum sank 1% to $26.50. However, BHP and Rio Tinto defied a fall in iron ore prices, with BHP up 0.44% to A$18.45 and Rio 0.96% to A$4.42.

Flight Centre lost almost 5% to close at A$31.88, adding to yesterday's 9% fall following a profit warning caused by weaker consumer confidence brought on at least partly by the federal election.

Japan Stocks slide on yen rise

The Japan share market ended lower in thin trading for the second straight session, as the yen's appreciation and weak Chinese shares hurt investor sentiment. Risk sentiments were also subdued on caution ahead of key events later this week including the two-day Group of Seven summit in Ise-Shima from Thursday and a speech by U.S. Federal Reserve Chair Janet Yellen on Friday. However, market's downside was also limited by lingering hopes for fiscal action by the government and additional monetary easing by the Bank of Japan. The 225-issue Nikkei average fell 155.84 points, or 0.94%, to close at 16,498.76. The Topix index of all first-section issues ended down 12.18 points, or 0.91%, at 1,326.50. Falling stocks outnumbered advancing ones on the Tokyo Stock Exchange by 1294 to 550 and 153 ended unchanged. The Nikkei Volatility, which measures the implied volatility of Nikkei 225 options, was down 2.00% to 25.95 a new 1-month low.

Japanese export-related companies continued met selling due to the stronger currency -- a minus for their profitability. They included automakers Toyota, Mazda and Fuji Heavy, electronics parts producer Murata Manufacturing, tire maker Bridgestone and industrial robot manufacturer Fanuc. Megabank Mitsubishi UFJ, mobile phone carrier SoftBank Group and clothing store chain operator Fast Retailing were also on the minus side.

Shares in carmaker Nissan fell 0.8% as reports suggested the company might sell its stake in auto parts supplier Calsonic Kansei. The sale would generate cash to help develop electric cars and artificial intelligence, the Nikkei newspaper reported. Last month, Nissan took a 34% stake in Mitsubishi Motors to support the embattled company after it admitted falsifying fuel consumption figures. Major foreign car parts makers, as well as US and European investment funds, appear to be interested in the stake, the Nikkei reported. Calsonic Kansei tumbled 8.6%.

By contrast, paper maker Oji Holdings, cardboard producer Rengo, airline JAL and daily goods producer Kao attracted buying. Rhythm Watch surged 10.3% after announcing Monday a plan to buy back large volumes of its own shares.

China Market falls for first time in three days

Mainland China stock market finished lower, as investors elected to withdraw profit off the table following gains on previous two sessions, with shares of commodity producers leading losses amid speculation raw-material prices will extend declines as a faltering economic rebound curbs demand. investor appetite was suppressed by confusion about how Beijing plans to guide the country's slowing economy and manage financial markets, as well as concerns that new loan growth and housing sales could be weaker in May. The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 0.8%, to 3,063.56, while the Shanghai Composite Index lost 0.8%, to 2,821.67 points.

Shares of materials and resources producers tumbled the most among 10 industry groups amid speculation raw-material prices will extend declines as a faltering economic rebound curbs demand. Angang Steel Co. declined 2.1%, while Yanzhou Coal Mining plunged 3.1%. Jiangxi Copper Co. dropped at least 1.2%.

Hong Kong Market ends higher in quiet trade

The Hong Kong stock market finished higher in quiet and narrow trade, as investors are awaiting for Fed Chair Janet Yellen's speech. Investors remained skeptical the U.S. Federal Reserve will raise short-term interest rates as soon as June, even after hawkish comments by three Fed officials overnight. A prevailing reluctance to make big bets before the Fed's policy meeting next month has kept trading quiet. The benchmark index opened up 18 points at 19,828, and moved within 156 points a whole day. The Hang Seng Index ended up 21 points or 0.1% to 19,830. The H-share index fell 1 point or 0.02% to 8,306. Turnover increased slightly to HK$44.7 billion from HK$43.8 billion on Monday.

Energy players closed weaker on tracking decline in crude oil prices. Brent crude oil futures edged lower as concerns surrounding recent disruptions to crude production eased, renewing expectations that global supplies will continue to outpace demand. Brent for July settlement was currently down 30 cents at $48.05 a barrel. The contract had fallen 37 cents or 0.75% to settle at $48.35 a barrel during the previous trading session. PetroChina (00857), Sinopec (00386) and CNOOC (00883) dropped 1.4%, 0.6% and 2% to HK$5.13, HK$5.07, and HK$8.86 respectively.

Macau gaming stocks showed muscles as the government kicked off its consultation regarding the development of theme parks and non-gambling tourism projects. Meanwhile Citi Research forecast GGR in May to remain unchanged. Galaxy Ent (00027) and Sands China (01928) jumped 5% and 2.2% to HK$25 and HK$27.9. Wynn Macau (01128) added 3.7% to HK$11.3.

Indian indices eke out small gains

An upward revision in monsoon forecast for the June-September 2016 south west monsoon season from private weather forecaster Skymet and gains in European stocks aided the upmove on the domestic bourses, with the barometer index, the S&P BSE Sensex, and the Nifty 50 index snapping a four-day losing streak. The Sensex gained 75.11 points or 0.3% to settle at 25,305.47. The Nifty rose 17.80 points or 0.23% to settle at 7,748.85. Skymet revised higher forecast for the 2016 southwest monsoon to 109% of the long period average (LPA) from 105% of the LPA predicted earlier. The announcement from Skymet hit the market towards the close of the trading session.

Shares of public sector oil marketing companies (PSU OMCs) declined on concerns surrounding a weak rupee. Novartis India surged a staggering 17% after the company said that its board of directors will consider a proposal for buyback of the company's equity shares along with the Q4 March 2016 result on 26 May 2016. Tata Power Company edged higher after the company announced strong Q4 results. Airline stocks declined as a weak rupee heightened concerns about its impact on operating costs. VRL Logistics tanked 20% after the company said its promoters may dilute a portion of their stake in the company to fund their proposed airline venture.

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