Asian stocks falter and Aussie slides after rate cut
HONG KONG — Asian stock markets retreated on Tuesday and the Australian dollar briefly fell after the central bank cut interest rates for the second time in four months as the region’s growth falters in the face of slowing demand from China.
The Reserve Bank of Australia (RBA) cut its cash rate a quarter point to an all-time low of 2% to push the stubbornly strong local dollar lower, in line with market and analysts’ expectations.
The Australian dollar fell a quarter of a cent initially, but then quickly rebounded as opinion was divided on how effective the latest RBA cut was going to be in tamping down the currency and spurring the broader economy.
"Cautious and uncertain households mean rate cuts are less effective today," Aberdeen Asset Management senior investment manager Jasmin Argyrou said.
"A low (Australian dollar) is still the best chance of rebooting the economy, but for that to happen the RBA will need to leave the cash rate at record lows, and for a record length of time," Ms Argyrou said.
Australian stocks fell nearly half a percent from before the decision to trade down 0.2%, while the Australian dollar was changing hands at $0.7895 in volatile trade.
MSCI’s broadest index of Asia-Pacific shares outside Japan extended losses and was down 0.5%. Liquidity was lacking with markets in Japan, South Korea and Thailand on holiday and little in the way of major economic data on the docket for Tuesday.
This week’s most anticipated data, US payrolls, will be released on Friday.
A survey released on Monday showed China’s factories suffered their fastest drop in activity in a year in April.
Surveys for Taiwan and Japan showed an index of factory activity slid below the 50-point level that separates growth from contraction compared with the previous month.
Even market darling India, has disappointed with softening domestic demand weighing on manufacturing growth.
The overall picture suggests Asian policy makers may have to launch a fresh round of easing.
"All this points to more easing by central bankers, although this may prove less effective than in the past," HSBC’s co-head of Asian economics, Frederic Neumann, wrote in a note to clients.
On Wall Street, the Dow had ended Monday up 0.26%, while the S&P 500 gained 0.29% and the Nasdaq 0.23%. Stirrings of a recovery in eurozone economic data had helped European shares higher on Monday, but kept sovereign bonds under selling pressure.
Yields on 10-year German bunds climbed to 0.46% and levels last seen before the European Central Bank (ECB) began buying bonds earlier this year.
A sea change across European markets last week saw the biggest rise in German yields since mid-2013 and the sharpest rally in the euro in three-and-a-half years.
The single currency has since faded from a two-month peak of $1.1290 to stand at $1.1145 on Tuesday, in part because the ECB remains committed to its aggressive easing campaign for at least another year.
The euro also lost a bit of ground against the yen, slipping to ¥133.88 from Friday’s two-month high of ¥135.29, while the dollar held at ¥120.15.
Bracing for a UK election on Thursday that is likely to be the most closely fought in recent history, sterling fetched $1.5122, not far off its one-week low of $1.5091 set overnight. It has fallen more than 2% since last Thursday.
In commodity markets, Brent oil hit a 2015 high before easing as Saudi Arabia’s plan to halt bombing in Yemen soothed tension over the security of Middle East oil supply.
Brent crude was quoted slightly lower at $66.36 a barrel, after touching a top of $67.10, while US crude eased 7c to $58.86.