Asian shares follow Hong Kong lower
Tokyo — Asian shares were led lower on Thursday as the Hong Kong market fell for second consecutive session following a day of massive street protests, while oil prices flirted with five-month lows due to higher US crude inventories and a bleak demand outlook.
Hopes that the US and China will clinch a deal on the sidelines of a G20 summit meeting in Osaka on June 28-29 have been fading, also hurting sentiment and driving bond yields down.
“There’s not even a plan of ministerial-level bilateral meetings ahead of the G20 summit. You can’t expect any major agreement,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell as much as 1%, as Hong Kong’s Hang Seng Index dropped 1.5% following Wednesday’s 1.7% fall.
The selling pressure in Hong Kong came after a mass demonstration against legislation that would allow citizens to be extradited to China triggered some of the worst unrest seen in the territory since Britain handed it back to Chinese rule in 1997.
Japan’s Nikkei lost 0.8% while US stock futures lost 0.3% in Asia, following small losses the previous day when the S&P 500 shed 0.20%.
Oil hovered near five-month lows, pressured by another unexpected rise in US crude stockpiles, as well as the bleaker outlook for demand posed by prospects of a protracted trade war between China and the US.
Brent crude futures barely moved at $60.06 in early trade after a 3.7% slide on Wednesday to $59.97 a barrel, the international benchmark’s lowest close since January 28.
US West Texas Intermediate crude futures stood at $51.12 per barrel, compared to the previous day's close of $50.72 a barrel, its weakest settlement since Jan. 14.
“It is a bit of mystery that oil prices are so low when global stock prices remain relatively supported. But one thing is certain. Weaker oil prices will curb inflation and boost rate cut expectations,” said Daiwa’s Kabeya.
Government data showed on Wednesday US consumer prices barely rose in May, with the core annual inflation slowing to 2.0%, compared to a peak of 2.4% last July, adding to the growing expectations of a Federal Reserve rate cut in coming months.
Investors will be looking to what Fed policymakers will say after its next policy meeting on June 18-19, with Fed Funds rate futures pricing in a 25-basis-point rate cut for the subsequent policy review on July 30-31.
The 10-year US Treasuries yield dipped to 2.103% , near Friday’s 2.053%, its lowest level since September 2017.
Bond yields fell in Asia. Long-dated Japanese government bond yields hit their lowest levels since August 2016, with 20-year yield down 2.5 basis points at 0.220%.
In Australia, long known for its high-yield currency, yields fell to record lows, with three-year yield now slipping below 1%.
In the currency market, the yen gained 0.25% to 108.25 to the dollar as risk sentiment soured while the Australian dollar dropped 0.2% to $0.6913.
The euro stood little changed at $1.1293, having taken a hit on Wednesday after US President Donald Trump said he was considering sanctions over Russia’s Nord Stream 2 natural gas pipeline project and warned Germany against being dependent on Russia for energy.
The British pound is on the back foot after British MPs defeated an attempt led by the opposition Labour Party to try to block a no-deal Brexit by seizing control of the parliamentary agenda from the government.
Sterling fetched $1.2688, not far from this week’s low of $1.2653.