Asia stocks off record highs as Wall St. flags, dollar firms on higher yields

TOKYO (Reuters): Asian stocks retreated from record highs on Tuesday after a selloff in Apple shares and spike in bond yields knocked Wall Street lower, while the dollar found support as US bond yields climbed to near four-year highs.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.1% after rising to an all-time high the previous day. It was still on track for a 6.5% monthly gain.

Australian stocks shed 0.9%, South Korea’s KOSPI lost 1% and Japan’s Nikkei dropped 1.4%.

Hong Kong’s Hang Seng slipped 0.9% and Shanghai was down 0.8%.

Spreadbetters expect the negative pressure to spill over to Europe, forecasting Britain’s FTSE to drop 0.7% at the open, Germany’s DAX to open 0.8% lower and France’s CAC to lose 0.6% at the open.

The bearish sentiment in Asia followed a softer lead from Wall Street, which has led a global equities rally over the past year thanks to strong world growth fuelling higher corporate earnings and stock valuations.

On Monday, US stocks pulled back from record highs, with the Dow and the S&P 500 indexes marking their biggest one-day percentage declines in about five months, weighed down by a slide in Apple shares.

The dollar, however, enjoyed a reprieve from some persistent selling in the past few weeks. Buoyed by higher US bond yields, the dollar index against a basket of six major currencies was 0.15% higher at 89.457, having bounced overnight from a three-year low of 88.438 plumbed on Friday when peers like the euro outshone the greenback.

The 10-year Treasury note yield stretched its overnight surge above 2.70% and reached its highest since April 2014 after comments from a European Central Bank official added to expectations that central banks globally will reduce stimulus as the economic outlook improves.

“This is a rise in real interest rates, also reflecting a rise in inflation expectations,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The yield rise may have bumped off US stocks from highs, but a correction was due after their recent gains,” Ichikawa said.

The US Treasury Department said on Monday that it expects to borrow $441 billion through the credit markets in the January-March quarter, less than announced previously.

Treasury yields remained elevated, however, as US borrowing is expected to continue increasing steadily in the coming years as the federal government looks for ways to fund budget deficits.

Moreover, the bond market braced for potentially hawkish language from the Federal Reserve, which will begin its two-day policy meeting on Tuesday.

The focus was also on US President Donald Trump’s State of the Union address scheduled later in the global day, with attention on his views on an infrastructure overhaul and trade.

The euro was down 0.2% at $1.2361 after slipping overnight from a three-year peak of $1.2538.

The dollar was 0.3% lower at 108.645 yen, unable to hold to a high of 109.205 scaled earlier.

“The dollar lost a bit of traction against the yen as losses deepened for stocks in Tokyo and the rest of Asia. US yields are going up, but players are hesitant to push dollar/yen higher ahead of President Trump’s address,” said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

The Australian dollar shed 0.3% to $0.8072 after reaching $0.8136 on Friday, its highest since May 2015.

Spot gold slipped to $1,334.10 an ounce, the lowest since Jan. 23, weighed by the stronger US currency. The precious metal had climbed to $1,366.06 last week, its highest since August 2016.

Oil prices extend declines on stronger dollar, rising US output

TOKYO (Reuters): Oil prices fell on Tuesday for a second day as rising US output and a strengthening dollar sapped demand for crude, pushing Brent below $69 a barrel for the first time in six days.

Brent crude futures, the global benchmark, had declined 49 cents, or 0.7 percent, to $68.97 a barrel by 0522 GMT, after earlier dropping as low as $68.91. The contract for March delivery settled down $1.06, or 1.5 percent, at $69.46 a barrel on Monday. US West Texas Intermediate crude futures dropped 70 cents, or 1.1 percent, to $64.86 a barrel. On Monday, they fell 58 cents, or 0.9 percent, to $65.56.

Prices are still heading for a fifth straight monthly gain.

“Markets remain fragile to the downside,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, citing a jump in the number of rigs drilling for oil in the United States.

US production is already on par with Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries (OPEC). Only Russia produces more, averaging 10.98 million barrels per day (bpd) in 2017.

US output has jumped more than 17 percent since mid-2016 and is expected to exceed 10 million bpd soon.

Drillers in the US added 12 oil rigs for new production in the week to Jan. 26, Baker Hughes reported on Friday.

The recent rally in oil prices had been fuelled by the US dollar’s six straight weekly slides. 

The greenback is down 3 percent so far this month.