Asia bourses await central bank meetings

Tuesday 05:20 BST. Asian markets dipped into the red as investors sat on the sidelines ahead of key central bank meetings this week.

Japan’s broad Topix was down 1.5 per cent, while the Nikkei 225 lost 1.3 per cent. Australia’s S&P/ASX 200 slipped 0.2 per cent as investors returned from a long weekend.

Hong Kong’s Hang Seng was off 0.8 per cent, while mainland China’s Shanghai Composite edged 0.3 per cent lower and the Shenzhen Composite was down 0.1 per cent.

Markets were in a holding pattern ahead of the Federal Reserve’s two-day policy meeting that concludes on Wednesday, and expected easing from the Bank of Japan on Thursday.

The Fed is not expected to lift rates at this meeting. Kit Juckes at Société Générale said the odds of an increase in June are about 20 per cent, adding that the US central bank may be unable to signal a move without triggering market turmoil.

“That would be anathema to Janet Yellen, but can the Fed really leave rates at these levels indefinitely just because they don’t want to disturb asset markets that are only where they are because of Fed policy? A neutral/dovish message may provide a modicum of short-term comfort to markets and hold down the dollar but wouldn’t solve the problem of how to prepare markets for further policy normalisation,” he said.

The dollar index, a measure of the US currency versus a basket of global peers, was down 0.1 per cent at 94.732, while gold, which is sensitive to US interest rate expectations, reversed early gains to be 0.2 per cent weaker at $ 1,235.93 an ounce.

The yen firmed by a quarter of a percentage point against the dollar to ¥110.93. The Japanese currency last week had its worst weekly performance since the Bank of Japan boosted its bond-buying programme in October 2014, as markets anticipated that the central bank will need to step up its efforts on Thursday, possibly by cutting interest rates further into negative territory or expanding the size of its asset purchases.

South Korea’s Kospi Composite was down 0.1 per cent, while the won was 0.2 per cent weaker against the dollar following the release of gross domestic product figures. Data showed that the economy grew at a year-on-year pace of 2.7 per cent in the first three months of 2016 as investment slowed and household spending remained sluggish. Growth was down from 3.1 per cent at the end of last year, but in line with economists’ expectations.

“Given that the external outlook remains subdued and private investment is unlikely to pick up significantly for the rest of the year, the central bank will likely step in to help the economy with a 25 basis point cut on May 13,” said Trinh Nguyen at Natixis.

Last week, the Bank of Korea cut its growth and inflation forecasts, expecting the economy to expand by 2.8 per cent in 2016, but it kept interest rates on hold.

Malaysia’s ringgit was down 0.8 per cent against the dollar and the worst-performing Asian currency after 1MDB, the state’s embattled development fund, said it was in default after not making an interest payment on a $ 1.75bn bond.

In recent weeks, the Malaysian currency has been tracking moves in oil prices, but the 1MDB news has rattled that relationship.

Brent crude, the international oil benchmark, trimmed early gains to be up 0.4 per cent at $ 44.64 a barrel, while West Texas Intermediate, the US marker, was up 0.3 per cent at $ 42.76.

Oil prices fell on Monday, putting some pressure on markets on both sides of the Atlantic. The S&P 500 and the Nasdaq Composite each retreated 0.2 per cent, while European stocks were down three-quarters of a percentage point.

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