China holds back Asian shares as dollar stands tall

Chinese markets dragged on Asian shares on Friday as they failed to latch on to a global record-setting rally after a week in which central banks around the world refrained from any hawkish surprises in a boost to the dollar.

The US currency made solid strides against sterling, which took a beating after the Bank of England confounded markets by passing up a chance to raise interest rates on Thursday.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.26 per cent while Japan’s Nikkei slid 0.5 per cent, albeit from a month high reached the day before.

Hong Kong weighed on the regional index, falling 1.25 per cent, pressured by index heavyweight HSBC as the rate sensitive bank’s shares tumbled nearly 5 per cent, hurt by the BoE’s dovish call, as well as by property stocks.

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Also in Hong Kong, trading in shares of Chinese developer Kaisa Group Holdings was suspended, a day after the company said a subsidiary had missed a payment on a wealth management product, the latest sign of a deepening liquidity crisis in the Chinese property sector.

An index tracking Hong Kong listed mainland Chinese developers slipped 1.5 per cent, and spreads on Chinese high-yield dollar debt hovered near record highs.

Shanghai shares lost 0.24 per cent though Chinese blue chips edged up 0.1 per cent.

In contrast, Australia’s S&P/ASX 200 index was set to notch its best week since late-May, and was up 0.5 per cent on the day.

Share markets globally were strong, with MSCI’s gauge of stocks across the world hitting a new all-time high on Thursday. It edged down 0.1 per cent in early Asia.

Overnight, the S&P 500 and Nasdaq extended their streaks of record high closes to six sessions, and the Dow Jones Industrial Average posted a slim loss, ending a string of record closes after bank shares weighed.

The gains came even after the US Federal Reserve on Wednesday finally announced that it would begin tapering its massive asset purchase programme, though Fed Chair Jerome Powell said he was in no rush to hike borrowing costs.

“Even though it transpired as expected, it is a significant milestone, the direction of travel is now clearly towards policy normalisation, though the Fed emphasised that tapering is not tightening,” said Stefan Hofer, chief investment strategist for LGT in Asia Pacific.

“It was really expert communication and very well handled” Hofer said US jobs data would remain in focus in the coming months as that would influence upcoming decisions from the Fed. US payroll data for October is due later on Friday.

One of the bigger surprises this week came from Bank of England’s shock decision on Thursday to defer an interest rate hike.

That sent the pound tumbling 1.36 per cent on Thursday while bond yields dropped both in Britain and Europe with Germany’s 10-year government bond yield, the benchmark for the eurozone, falling 6 basis points, to a one-month low of -0.23 per cent.

The dollar index last stood at 94.353 within sight October’s 12-month highs. US Treasury yields also fell and the US yield curve steepened overnight.

US benchmark 10-year yields dropped to 1.509 per cent their lowest level since mid-October on Thursday, but regained some ground and was last at 1.5367 per cent.

Oil prices rebounded on Friday, regaining a little ground from month lows hit a day earlier, after a report that Saudi Arabia’s oil output will soon surpass 10 million barrels per day for the first time since the outset of the Covid-19 pandemic.

US crude rose 1.03 per cent to $79.62 a barrel, while Brent crude was up 1 per cent at $81.18 per barrel.

Spot gold tacked on 0.17 per cent as the falling yields provided support to the non-interest bearing asset. – Reuters