Asian stocks down, bonds rally as ‘Brexit’ vote looms

Reuters: Asian shares pulled back on Friday as investors sought refuge in safe-haven assets amid festering concerns over the June 23 referendum that could see Britain exit the European Union.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.6%, but remains poised for a weekly gain of 1.7%.

Japan’s Nikkei declined 0.5%, extending losses for the week to 0.3%.

China’s CSI 300 index slipped 0.4%, and the Shanghai Composite retreated 0.3%, setting them up for falls of 0.8% and 0.4% respectively.

Hong Kong’s Hang Seng index slipped 0.3%, heading for a loss of 1.4% for the week.

“There are concerns over ‘Brexit’ as polls seem to suggest the probability of Britain leaving Europe is rising,” said Tatsushi Maeno, managing director at PineBridge Investments.

“You can’t buy risk assets under such conditions even if you want to,” he said.

Wall Street shares also pulled back on Thursday after three days of gains, as a decline in the number of unemployment benefits claims last week showed the labour market remains strong despite May’s unexpected drop in job growth.

The S&P 500 lost 0.17% to finish at 2,115.48, but remained only about 15 points below its record closing high.

Global bond yields dropped to new lows and perceived safe-haven currencies gained as investors fled to the safety of bonds on concerns about Britain’s referendum on European Union membership on June 23.

“There are a number of different factors driving yields lower and it started last week with the weak US jobs data pushing rate-hike expectations back,” said Patrick Jacq, European rate strategist at BNP Paribas.

“For the euro zone, this was the only constraining factor for lower yields.”

German 10-year Bunds yield hit a record low of 0.023% while the 10-year British gilt yield struck an all-time low of 1.222%.

The start of the European Central Bank’s corporate bond purchase programme also bolstered European bonds.

In Japan, the 10-year government bond yield slipped to minus 0.145%, close to the record low of minus 0.140% seen earlier in the session.

The 10-year US Treasuries yield broke out of the trading range is has been in since March to hit a 3 1/2-month low of 1.659% on Thursday. It last stood at 1.6798%.

The retreat in risk sentiment is proving a boon for gold, which is hovering near a three-week high, and on track for a second straight weekly rise.

Spot gold pulled back 0.2% on Friday to $ 1,266.86 an ounce, after climbing as high as $ 1,271.31 overnight. It’s up 1.8% for the week.

In the currency market, the decline in US unemployment benefit claims supported the dollar index, which tracks the greenback against a basket of six peers. The index advanced 0.3%, extending gains for the week to 0.2%.

The Swiss franc has gained 1.6% over the past five days, its biggest five-day gain since March 2015, hitting a eight-week high of 1.0886 franc per euro on Thursday. It last stood at 1.08980, on track for a weekly increase of 1.8%.

The low-yielding yen, which tends to be bought back when risk appetite suffers, stood at 107.13 per dollar, clinging near five-week highs of 106.26 set on Thursday, but remains down 0.6% for the week.

The euro eased to $ 1.1298 from a four-week high of $ 1.1416 set on Thursday, but is poised for a weekly decline of 0.6%.

The British pound was on edge at $ 1.4456, having slipped from this week’s high of $ 1.4664 touched on Tuesday, and heading for a drop of 0.4% this week.

Although it has stayed 4.5% above its seven-year low set in late February, investors are actively seeking protection against a slide in the event of Brexit.

The cost of hedging against swings in sterling’s exchange rate over the next month soared, with sterling’s one-month implied volatility hitting its highest in more than seven years.

Oil prices also stepped back after notching another 2016 high.

Still, persistent threats by militants against Nigeria’s oil industry and fear of more security incidents that could hit supply limited losses in crude. Global benchmark Brent crude futures slipped 0.1% to $ 51.88 per barrel, after having risen to as high as $ 52.86 on Thursday, and looks set to record a 4.5% gain for the week.

US crude slid 0.2% to $ 50.44 a barrel, poised to end the week 3.7% higher.

Oil falls on stronger dollar; high refinery demand lends support

Reuters: Oil prices fell on Friday, as a stronger dollar pulled crude off the 2016 highs hit this week, although strong refinery demand and global supply disruptions lent some support.

International Brent crude oil futures were trading at $ 51.59 per barrel at 0537 GMT, down 36 cents from their last settlement. US West Texas Intermediate (WTI) futures were down 38 cents at $ 50.18 a barrel.

Analysts said that a rebound in the dollar had dented oil prices by making fuel imports for countries using other currencies more expensive.

“Oil prices eased back from a near 12-month high as the dollar reversed its recent trend,” ANZ bank said on Friday.

However, strong overall oil demand especially from refineries, as well as supply disruptions, were helping to keep prices from falling faster and further.

“Despite falling slightly overnight, the outlook for oil (prices) remains positive – which should keep the recent upward trend intact,” ANZ added.

Crude prices have virtually doubled since touching their lowest in more than a decade in early 2016 as strong demand and supply disruptions erode a glut that pulled down prices by as much as 70% from a mid-2014 peak.

Market rebalancing is ongoing. On the demand side, global refining activity is about to hit its highest on record just as crude supply disruptions around the world tighten the market.