Asian stocks fall as trader fret about burgeoning cost of pandemic
Gold tests new high as weaker dollar and falling bond yields fuels its safe-haven appeal
Sydney — Gold scaled a new high on Wednesday as a weaker dollar and falling bond yields burnished its safe-haven appeal, while shares were mostly lower as investors balked at the ballooning cost of the coronavirus pandemic.
Risk assets such as equities have surged in recent months on huge policy stimulus from central banks and governments, but gold has also rallied in a sign of heightened uncertainty around the long-term effects of the global health crisis.
Spot gold jumped to a record high of $2,030.72/oz on Wednesday as bond yields hit new lows. Prices have soared about 33% this year.
Investors are counting on even more spending in the US, with White House negotiators vowing to work “around the clock” to reach a deal by the end of the week.
Markets also latched on to comments from the president of Federal Reserve Bank of San Francisco that the US economy will need more support than initially thought, sending long-term treasury yields into a downward spiral.
“Failure to agree to another round of stimulus would hit the US economy hard at a time when high-frequency data suggests it is losing some momentum,” said Tapas Strickland, analyst at Melbourne-based National Australia Bank.
The US has reported more than 4.7-million coronavirus cases and more than 157,000 deaths, the highest globally.
On Wednesday, MSCI’s broadest index of Asia-Pacific shares outside Japan was flat near a six-and-a-half-month peak at 560.36 points.
Japan’s Nikkei was off 0.86% while Australia’s benchmark index slipped 1%. Chinese shares fell too with the blue-chip CSI300 index down 0.8%, though it was not too far from a recent five-year peak.
South Korea’s Kospi bucked the trend to hit its highest level since October 2018.
E-mini futures for the S&P 500 was down 0.1%.
On Wall Street, the Dow ended up 0.6%, the S&P 500 rose 0.4% and the Nasdaq Composite added 0.4%.
“Significantly increased odds” of more monetary policy stimulus from the US Federal Reserve is a key driver of equities, though the rally has been reined in by stretched valuations, Mizuho analysts wrote in a note.
More central bank support is also dragging US treasury yields lower, led by the long-end of the curve, and helping “fire-up gold’s glitter”, they said.
Greenback under pressure
The dollar was under pressure with the safe-haven Japanese yen rising to ¥105.66 as the bond market’s dim view of the US recovery sent real yields further into negative territory and nominal yields near record lows.
The risk-sensitive Australian dollar has risen more than 2% so far in 2020 while the euro has climbed over 5% against the greenback.
The Aussie was last up 0.3% at $0.7184 while the common currency was inching towards a two-year high at $1.1812, buttressed by hardening perception that the US rebound is lagging behind Europe.
Investors are now waiting for an Auguat 15 video conference where senior US and Chinese officials are set to review a trade deal and likely air mutual grievances, according to sources.
China’s US envoy on Tuesday said Beijing does not want the tension to escalate.
In commodities, oil prices were a tad weaker with Brent crude off 8c at $44.35 a barrel. US crude was down 11c at $41.59.
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