SYDNEY, Aug 3 — Asian shares and the dollar made a cautious start to the new month on Monday as US lawmakers struggled to hammer out a new stimulus plan and a global surge of new coronavirus cases showed no sign of abating.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 per cent, though that was from a six-month top. Japan’s Nikkei added 1.1 per cent courtesy of a pullback in the yen, while South Korea shares eased 0.3 per cent.
E-Mini futures for the S&P 500 dithered either side of flat.
Investors were nervous at the lack of a new stimulus package in the United States with White House Chief of Staff Mark Meadows not optimistic on reaching agreement soon on a deal.
On Friday, Fitch Ratings cut the outlook on the United States’ triple-A rating to negative from stable, citing eroding credit strength and a ballooning deficit.
The credit rating agency also said the future direction of US fiscal policy depends in part on the November election and the resulting makeup of Congress, cautioning there is a risk policy gridlock could continue. Strong results from tech giants helped the S&P 500 climb 5.5 per cent last month, while the Nasdaq rose 6.8 per cent. Other sectors, however, did not fair nearly as well as many states rowed back on opening their economies in the face of surging infections.
“Amid improvements in business sentiment, signals are emerging that the initial boost from pent-up demand is fading and consumer confidence is slipping lower,” wrote economists at Barclays in a note.
“Together with concerns about labour market and virus developments, this clouds the outlook and could be exacerbated if US fiscal support is not renewed in time.”
Much will depend on what key data show this week including the ISM survey of manufacturing later today and the crucial payrolls report on Friday.
The uncertainty saw benchmark 10-year Treasury yields hit their lowest since March at 0.52 per cent last week and were currently just a fraction higher at 0.53 per cent.
The 10-year real rate has broken below -1 per cent for the first time amid a marked flattening of the yield curve as investors wager on yet more accommodation from the Federal Reserve.
That took a heavy toll on the US dollar which suffered its worst monthly drubbing in a decade in July even after rallying on Friday as bears took profits on crowded short positions.
The dollar was last at US$1.1782 per euro, with the single currency having gained 4.8 per cent in July to stretch as far as US$1.1908. Against a basket of currencies, the dollar stood at 93.399 having touched its lowest since May 2018 on Friday at 92.538.
The dollar was a shade lower on the Japanese yen at 105.80 after hitting a 4.5-month low last week at 104.17.
It had bounced in part when Japanese Finance Minister Taro Aso described the yen’s recent rise as “rapid”, signalling concern that a strong currency could add pain to an export-led economy already in recession.
The decline in the dollar combined with super-low real bond yields has been a boon for gold which boasted its biggest monthly gain since February 2016.
The metal made a fresh peak early today at US$1,984 an ounce and seemed on track to take out US$2,000 soon.
“Even though gold is up about 30 per cent this year, we believe there is still plenty of upside left in this rally,” wrote analysts at ANZ.
“The backdrop remains high conducive; with unwavering support from central banks likely to see monetary easing policy remain in place for the foreseeable future. This will keep bond yield low, raise inflation expectations and potentially keep the USD weak.”
They had a 12-month gold price target of US$2,300/ounce.
Oil prices were supported by news that US oil output cuts in May were the largest on record, even as the outlook for demand suffered amid more coronavirus lockdowns.
Brent crude futures dipped 7 cents in early trade to US$43.45 a barrel, while US crude eased 8 cents to US$40.19. — Reuters
