SYDNEY (Reuters) – Asian stocks hit a two-week low on Wednesday, oil weakened further and the dollar approached four-month highs as coronavirus lockdowns in Europe and potential US tax increases weighed on the appetite for risk, leading to a flight to safety.
MSCI’s broader Asia-Pacific equity index outside of Japan fell 1% after falling 0.9% on Tuesday. It dropped to 676.46 points, a level last seen on March 9.
The index has had a disappointing run in March after five straight months of gains, as risk assets were spooked earlier by fears that inflation would rebound at a faster-than-expected pace led by the successful launch of the vaccine. against coronavirus and massive US fiscal stimulus.
Japan’s Nikkei faltered 1.8% while South Korea’s KOSPI fell 0.5%. Chinese stocks were in the red for a second day with the top-line CSI300 index slipping 1.2%. Hong Kong’s Hang Seng skidded 1.7%.
On Wall Street overnight, the Dow Jones Industrial Average fell 0.94%, the S&P 500 lost 0.76% and the Nasdaq Composite fell 1.12%.
“The combination of increasing lockdowns in much of Europe and some reduction in risk in the emerging markets space led to a risk-free day in which Treasuries rallied thanks to a flight offer to quality,” John Briggs, Global Chief Strategy Officer for NatWest wrote in a note to clients.
Germany extended its blockade until April 18. A US health agency said the AstraZeneca Plc vaccine developed with the University of Oxford may have included outdated information in its data, further fueling investor concerns about the recovery.
“So unlike the day before, the reduction in risk appetite was the driver today, which also led to widespread USD strength in a flying move towards quality, not just against emerging markets but also against most of the major ones, “Briggs added.
In addition to investor woes, Treasury Secretary Janet Yellen told Congress on Tuesday that the US economy remains at risk.
In currencies, the dollar index came close to a four-month high of 92,506 against a basket of most major currencies. [FRX/]
The euro advanced to a four-month low below $ 1.18355, trading as low as $ 1.18360, after Germany extended its lockdown. The safe-haven yen was broadly stronger, and the Australian dollar, considered a liquid indicator of risk, weakened further on Wednesday.
Benchmark 10-year notes rose 19/32 in price to yield 1.6153% after Federal Reserve Chairman Jerome Powell downplayed the risk of inflation.
The US manufacturing data was due to be presented later Wednesday and Powell was expected to give the same prepared testimony before a Senate banking panel.
The flight to safety hurt commodity prices, although oil prices rose on Wednesday as investors scrambled for bargains. However, gains were limited as lockdowns in Europe and rising stocks of US crude curbed risk appetite and raised fears about oversupply. [O/R]
Brent crude futures fell 16 cents to $ 60.62 a barrel, after falling 5.9% and hitting a low of $ 60.50 on Tuesday. West Texas Intermediate (WTI) crude futures fell 21 cents to $ 57.55, having lost 6.2% the day before.
Safe-haven gold rose to $ 1,731.2 an ounce.
Reporting by Swati Pandey in Sydney and Chris Prentice in Washington; Editing by Cynthia Osterman and Stephen Coates