Asian stocks retreat as U.S. political tumult adds to growth worry

TOKYO - 26 December 2018: Asian stock markets retreated again on Wednesday, extending a rout that began last week as U.S. political uncertainty exacerbated worries over slowing global economic growth.

Investors were unnerved by the U.S. federal government partial shutdown and President Donald Trump’s hostile stance toward the Federal Reserve chairman.

U.S. Treasury Secretary Steven Mnuchin had also raised market concerns by convening a crisis group amid the pullback in stocks.

S&P 500 emini futures were last down 0.6 percent, pointing toward a lower start for Wall Street when the U.S. market reopens after Christmas Day, when many of the world’s financial markets were shut.

Markets in Britain, Germany and France will remain closed on Wednesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.5 percent, brushing a two-month low.

The Shanghai Composite Index lost 0.4 percent while South Korea’s KOSPI shed 1.6 percent.

Japan’s Nikkei, which slumped 5 percent the previous day, had a volatile session. It swerved in and out of the red, falling more than 1 percent to a 20-month-low at one stage, before ending the day with a gain of 0.9 percent.

“In addition to concerns toward the U.S. economy, the markets are now having to grapple with growing turmoil in the White House which has raised political risk ahead of the year-end,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

U.S. stocks have dropped sharply in recent weeks on concerns over weaker economic growth. Trump has largely laid the blame for economic headwinds on the Fed, openly criticizing its chairman, Jerome Powell, whom he appointed.

That has further rattled investors as they grappled with fears of slowing global growth, corporate earnings and U.S.-China trade tensions.

In an effort to reassure investors, Treasury Secretary Mnuchin spoke on Sunday with the heads of the six largest U.S. banks, who confirmed they have enough liquidity to continue lending and that “the markets continue to function properly.”

“In the end, we believe that the Fed is the only presence capable of ending the current confusion in the markets,” Kenta Inoue, senior market economist at Mitsubishi UFJ Morgan Stanley Securities, said in a note.

“The White House will probably keep making gestures intended to halt the rout in stocks, but the federal government is likely to remain shut into the new year. The U.S.-China trade war also shows no signs of a resolution.”

U.S. bond yields have declined amid the rout, including a steep sell-off in oil, prompted investors to move into safe-haven government debt, adding to the growing pressure on the dollar.

The dollar traded at 110.35 yen after retreating to a four-month low of 110.00 overnight against its Japanese peer, which tends to attract demand as a perceived safe-haven during times of market volatility and economic stress.

The euro was 0.15 percent higher at $1.1412.

The 10-year U.S. Treasury note yield extended its fall to touch 2.722 percent, its lowest since early April.

In commodities, U.S. crude futures were up 0.4 percent at $42.70 per barrel after tumbling 6.7 percent on Monday.

U.S. crude futures plunged to the lowest level since June 2017 on Monday, as bearish stocks added to fears of an economic slowdown. [O/R]

Brent crude futures were down 0.18 percent at $50.38 a barrel, having skidded 6.2 percent in the previous session to their weakest since August 2017.

Safe-haven gold was well bid, with spot prices brushing a six-month peak of $1,272.83 per ounce. [GOL/]