Japanese Stocks Lead Declines in Asia, Yuan Rises: Markets Wrap

(Bloomberg) — Stocks in Asia fell as Japanese equities underperformed following currency warnings by a top official. The yuan climbed amid support signs.

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A regional equity gauge slipped for a second session, with Japan’s Topix index among the worst performers. This came after the nation’s top currency official warned against speculative moves in the foreign-exchange market. South Korea’s Kospi index also declined, while Australian shares inched higher. European and US equity futures were little changed.

The offshore yuan rose as the dollar weakened and China’s central bank set a stronger-than-expected daily reference rate. The gap between the yuan’s daily fixing versus estimates was the widest since November, while Bloomberg calculations indicated the People’s Bank of China injected a net 40 billion yuan ($5.56 billion) in open market operations.

Chinese Premier Li Qiang had earlier downplayed investor concerns of challenges facing the economy, saying Beijing was stepping up policy support to spur growth and systemic risks are being addressed.

“Just saying the risks are not as much as people think is not going to draw investors back,” says Vey-Sern Ling, managing director at Union Bancaire Privee. “China is not just a ‘show me’ story for investors, it’s a ‘show me a lot more than I expect’ story.”

Chinese and Hong Kong stocks edged lower.

Treasuries were mostly steady following a rally on Friday that wiped seven basis points from the 10-year yield. Australian and New Zealand bond yields ticked lower Monday.

The moves came ahead of a busy week of economic data that will include the Federal Reserve’s preferred inflation gauge due Friday. The core personal consumption expenditures index, which excludes food and energy costs, is seen rising 0.3% on the heels of its biggest monthly increase in a year.

Inflation readings are also due in Australia, France, Italy and Spain later this week, offering clarity on rising prices as investors begin to position for rate cuts.

The recent advances for the dollar reflect a shift in investor thinking about the world’s reserve currency. At the start of the year, many expected the dollar to weaken against its peers as the Fed edged closer to rate cuts. Now, the prospect that other developed market central banks will also cut has rekindled the currency’s appeal.

“Tightening usually causes recessions when it triggers financial crises that turn into credit crunches,” said Ed Yardeni, president of his eponymous research firm, said in a Monday note. “That sequence of events is unlikely now,” he said, citing the Fed’s use of emergency liquidity measures to address crises, such as the stress in the US banking system in March last year.

Forecasts for Fed cuts have spurred renewed interest in the so-called bond steepener trade, where investors load up on short-dated US bonds that offer attractive short-term price appreciation as rates fall.

In commodities, oil gained on escalating geopolitical unrest following attacks in Russia, as well as positive commentary about the outlook for commodities. Gold was little changed, while iron ore held its largest weekly advance in six months.

Key events this week:

Bank of England policymaker Catherine Mann speaks, Monday
US new home sales, Monday
Fed’s Austan Goolsbee, Lisa Cook, Raphael Bostic speak, Monday
ECB chief economist Philip Lane appearance, Tuesday
US durable goods, Conference Board consumer confidence, Tuesday
Australia CPI, Wednesday
Bank of Japan board member Noaki Tamura speaks, Wednesday
China industrial profits, Wednesday
Bank of Communications, Agricultural Bank of China, China Merchants Bank report earnings, Wednesday
Eurozone economic, consumer confidence, Wednesday
Bank of England issues financial policy committee minutes, Wednesday
Fed’s Christopher Waller speaks, Wednesday
Germany unemployment, Thursday
UK GDP revision, Thursday
US University of Michigan consumer sentiment, initial jobless claims, GDP, Thursday
Japan unemployment, Tokyo CPI, Friday
France CPI, Friday
US personal income and spending, wholesale inventories, Friday
Exchanges closed in US and many other countries in observance of Good Friday holiday, Friday
Fed’s Jerome Powell, Mary Daly speak, Friday