Japan drove a selloff in Asian stocks as concern over the global economy and the U.S. interest-rate outlook propelled the yen to its strongest level in more than 18 months. Crude oil and copper declined with many traders out for the May Day holiday.
The Topix index tumbled the most since February in Tokyo, with the yen extending gains in the wake of its steepest two-day advance since the global financial crisis. Stocks in Australia and South Korea also fell with markets in China to Vietnam and Malaysia closed Monday for the holiday. Copper futures dropped after a gauge of Chinese manufacturing came in just below consensus, while Australia’s dollar gained. Oil retreated for a second day as near-record Iraqi output added to anxiety over OPEC supply and the global glut.
With Japanese markets closed for a holiday Friday, investors returning Monday not only have to contend with the fallout from the central bank’s surprise decision to hold off on boosting stimulus, but the yen’s reaction to it. The currency soared almost 5 percent on the final two days of last week, the most since October 2008, after the Fed stood pat on key rates and a run of disappointing U.S. data underlined what was a week of inaction from policy makers around the world. Some banks are also forecasting another selloff in oil.
“Most would agree that the U.S. economy is still in far better shape overall,” Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand Ltd., said in a note to clients Monday. “But the recent softness has many mindful nonetheless, and means there is now a huge focus on this week’s U.S. payrolls and next week’s retail sales data. While most would agree that the labor market is in reasonable health, activity data has certainly presented more of a clouded picture of late.”
Consumer spending rose less than economists forecast in March, data Friday showed, wrapping up the weakest quarter in a year for the biggest part of the U.S. economy even as incomes accelerated. A tempering of household purchases for the last three quarters has surprised economists given the favorable backdrop of low inflation, job gains and cheap borrowing costs. A report on Friday is projected by economists to show nonfarm payrolls in the U.S. rose by 200,000 workers in April, after climbing by 215,000 in March.
The MSCI Asia Pacific Index fell 1.6 percent as of 9:49 a.m. Tokyo time, declining for the sixth time in seven days. The Topix retreated as much as 3.8 percent, the most since Feb. 12, as exporters and mining shares led losses. The Nikkei 225 Stock Average lost 3.9 percent.
“To sum it up in a single phrase, there was a gap in the communication between the BOJ and the market,” said Yoshinori Ogawa, a market strategist at Okasan Securities Co. in Tokyo. “There are concerns the yen may strengthen beyond 105 per dollar. As we are in the middle of long holidays, liquidity is thin which makes it easier for speculators to whip markets around with their selling.”
Trading volumes in the Topix and the Nikkei were more than 55 percent above their 30-day average, according to data compiled by Bloomberg, while volatility expectations surged. The Nikkei Stock Average Volatility Index, a gauge of expected price swings in Japanese shares, jumped 18 percent to its highest level on a closing basis since March 1.
Australia’s S&P/ASX 200 Index lost 1.3 percent, driven lower by banks and technology stocks, while Kospi index in Seoul was down 0.4 percent. Markets in Hong Kong are also closed Monday.
MSCI’s All-Country World Index dropped 0.3 percent in early Monday trading, falling for a third day. After surging 7.2 percent in March, global stocks racked up a 1.3 percent increase for April, as concern over growth and company earnings eroded market optimism.
Trading in India, Indonesia, and the Philippines continues as usual Monday, with a swathe of manufacturing purchasing managers’ indexes due. Thailand and Indonesia update on consumer prices, and data on Australian business confidence is also scheduled.
The yen jumped 0.2 percent to 106.28 per dollar, set for a third day of gains after climbing to 106.14, its strongest level since Oct. 17, 2014. The currency was the best performer among major peers versus the greenback last month, exceeding gains of more than 4 percent in the Brazilian real and the Colombian peso.
BOJ Governor Haruhiko Kuroda’s decision to hold off on adding to stimulus came just hours after Fed Chair Janet Yellen frustrated dollar bulls by reiterating she’s in no rush to cool the economy by raising borrowing costs. Ten-year U.S. Treasury yields fell five basis points, or 0.05 percentage point, last week to trim their six basis-point increase in April.
“So long as the Fed signals that they are being cautious in raising rates, real yields in the U.S. will decline, leading the dollar weaker,” said Hiromichi Shirakawa, the Swiss lender’s chief Japan economist and a former BOJ official. “The currency market is in a rather dangerous zone.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, dropped 0.1 percent after slipping 0.6 percent on Friday. The index sank 2 percent last week, its worst weekly performance in more than a year.
The Aussie added at least 0.2 percent with New Zealand’s dollar amid the broad weakness in the greenback. Both countries count China as a key trading partner.
Ten-year U.S. yields dropped one basis point to 1.83 percent, after rising that amount on Friday. Japanese government bonds were the biggest movers in Asia, with yields on notes due in a decade down two basis points to negative 0.098 percent.
Puerto Rico said Sunday that it will default on a $422 million bond payments for its Government Development Bank, escalating what is turning into a major crisis for the commonwealth. The bank, already already operating under an emergency period, had until the end of Monday to make the payment.
West Texas Intermediate crude lost at least 0.7 percent with Brent oil in early Monday trading, falling to $45.61 a barrel.
The Organization of Petroleum Exporting Countries boosted output in April by 484,000 barrels to 33.217 million a day, the most in monthly data going back to 1989, according to a Bloomberg survey of oil companies, producers and analysts showed. Iraqi exports approached a record high in April, climbing by 3.36 million barrels a day, an oil ministry spokesman said by text message Sunday.
In other energy market news, oil-service firms Halliburton Co. and Baker Hughes Inc. called off their $28 billion merger amid stuff antitrust resistance from regulators in the U.S. and Europe. Halliburton announced the Baker Hughes takeover in November 2014 in a bid to better compete against industry leader Schlumberger Ltd.
Copper futures for July delivery dropped 0.6 percent to $2.2690 a pound, after rising 2.3 percent on Friday.
China’s official factory gauge dropped to 50.1 in April, the nation’s statistics agency said Sunday, down from 50.2 in March and trailing a 50.3 estimate. It marked, however, the second consecutive month the indicator has moved above 50, which indicates improving conditions. The non-manufacturing PMI, which signals conditions at services and construction firms, slid slightly to 53.5 last month after a big jump in March.
Gold was little changed at $1,293.90 an ounce in the spot market, after capping a 4.9 percent weekly gain, its best week since mid-February.