Asia Stocks Slide After U.S. Sell-off; Yields Drop: Markets Wrap

2018/11/13

November bounce evaporating fast as ‘wall of worry’ sets in
Tech outlook dims, trade woes beckon, Fed still set to hike

David Kelly at JPMorgan Asset Management discusses the bull run of the dollar.

Asian stocks tumbled at the open on Tuesday, with Japanese benchmarks sliding more than 3 percent at one point, following a tech-led slump on Wall Street overnight thanks to a deteriorating outlook for iPhone sales. Treasury yields dropped and the yen headed higher.

Key indexes slid from Tokyo and Seoul to Sydney, and futures in Hong Kong pointed to a significant drop. Apple Inc. suppliers are under pressure after the iPhone maker faltered on signs of a deteriorating sales outlook. S&P 500 Index futures dipped. Earlier, the Nasdaq 100 Index dropped for a third day and the Russell 2000 small-cap benchmark erased its gains for the year. Oil fell for a record 12th straight day. The dollar traded at 18-month highs.

Seeing Red

All members of the Nikkei 225 Stock Average saw losses in the first hour of trading Tuesday.

The latest warning on consumer appetite for electronics came from Lumentum Holdings Inc., an Apple supplier that said a top customer asked to “meaningfully reduce shipments” for previously placed orders. Deteriorating sentiment towards tech has hit the sector that had propelled American stock gains until October. Trade-war worries are also rising, with the White House circulating a draft report on auto tariffs.

In the background is a Federal Reserve that continues on its path of policy normalization. San Francisco Fed President Mary Daly indicated Monday that she isn’t worried about recent declines in stocks. A “broad consensus” had agreed that “valuations were higher than could be supported,” she said. “So then a correction is something that I would view as a positive.” The Fed is forecast to hike interest rates again next month.

“We always talk about that proverbial wall of worry and that wall right now is pretty high,” David Kudla, chief executive officer of Mainstay Capital Management, said on Bloomberg TV. “We have the issues in China with the growth concerns there, we have the issues in Europe with the battle between the Italy and the EU, the U.K. getting ready for Brexit. There is some guidance lower on earnings, and a Federal Reserve that is going to raise rates.”

Britain’s pound is holding losses from the past three days as pressure builds on U.K. Prime Minister Theresa May to ditch her Brexit plan. The euro is trading around its weakest against the dollar since June 2017 ahead of more potential stress around Italy’s budget. Italian bonds fell as most euro-zone debt edged higher Monday.

Elsewhere, General Electric Co. extended a rout after its chief executive officer’s attempt to reassure investors fell flat. Goldman Sachs Group Inc. fell the most since 2011 after Malaysia’s finance minister said the nation would seek a “full refund” over bond deals for its sovereign wealth fund that have landed the company in the midst of corruption probes. Emerging-market stocks and currencies fell.

Terminal users can read more in our Markets Live blog.

Coming Up

Tuesday marks the deadline set by the EU for Italy to revise its budget.
Chinese industrial production and retail sales data due Wednesday.
Fed Chairman Jerome Powell on Thursday discusses national and global economic issues with Dallas Fed President Robert Kaplan at an event hosted by the Dallas Fed
U.S. consumer inflation probably rebounded in October after easing in September. The consumer price index data is projected to show a 0.3 percent increase from the prior month.
Policy decisions are coming from central banks in Mexico, Philippines, and Thailand.

These are the main moves in markets:

Stocks

Japan’s Topix index slumped 3 percent as of 10:08 a.m. in Tokyo.
Australia’s S&P/ASX 200 Index dropped 1.7 percent.
South Korea’s Kospi index fell 2.2 percent.
Hong Kong Hang Seng Index futures lost 1.1 percent earlier.
S&P 500 futures fell 0.3 percent. The S&P 500 Index fell 2 percent Monday, when the Nasdaq 100 tumbled 3 percent.

Currencies

The yen rose 0.2 percent to 113.63 percent.
The offshore yuan was little changed, trading at 6.9675 per dollar.
The Bloomberg Dollar Spot Index was flat after increasing 0.6 percent Monday to the highest in 18 months.
The euro traded little changed at $1.1229.
The British pound was steady at $1.2861 after losing 0.9 percent Monday.

Bonds

Yields on 10-year U.S. Treasuries dropped about three basis points to 3.15 percent.
Australia’s 10-year bond yield fell more than three basis points to 2.70 percent.