Sovereign bonds surged with the yen and higher-yielding currencies as the Federal Reserve’s caution regarding the global economic outlook rippled through commodity markets. Asian shares outside Japan climbed.
German 10-year bond yields tumbled the most since July, while government notes rallied from New Zealand to the U.K. as Treasuries held on to gains. The yen extended a surge of more than 1 percent since the Fed held rates, while the Australian dollar led gains among currencies with higher borrowing costs. The Stoxx Europe 600 Index fell, while the MSCI Asia Pacific excluding Japan Index headed for a one-month high.
“Yellen kept referring to the strong dollar and turmoil offshore, those were
the main issues,” Mark Lister, head of private wealth research at Craigs Investment Partners Ltd. in Wellington, which manages about $7.2 billion, said by phone. “They probably have taken a little bit more notice of what’s happening overseas, in China and emerging markets, than some people might have expected. Every meeting is going to be considered live from now on, but it’s looking like a better than even chance that it’s next year’s story.”
For the third straight quarter Fed officials lowered projections for the funds rate in coming years, saying in a statement that “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” While the median projection from Fed officials signals a rate increase by year-end, fed fund futures show traders anticipate the central bank may wait until 2016.
The yen surged as the Fed announced it was holding rates in the face of global uncertainties. (Times are H.K.)
Ten-year German bund yields plunged 10 basis points to 0.685 percent by 8:10 a.m. in London. Yields were lower across the region, with double-digit declines in rates on similar-maturity notes in England, France, Italy and Spain.
The rate on Australian notes due in a decade slid nine basis points to 2.78 percent, and neighboring New Zealand’s benchmark yield fell five basis points. Three-year Korean notes rose the most in three months, pushing their yield to a record low. Treasuries maintained Thursday’s gains.
Futures traders are pricing in a 17 percent probability the central bank increases it target range in October, a 44 percent chance by the December meeting and a 52 percent likelihood by January. Fed Chair Janet Yellen told a press conference that most policy makers still expect to raise rates this year.
(For more news on bonds, see TOP BON.)
Stocks
The Stoxx 600 retreated 0.9 percent, with all 19 industry groups sliding. Standard & Poor’s 500 Index futures advanced 0.1 percent after the gauge slipped 0.3 percent.
The MSCI Asia Pacific Index climbed 0.2 percent, with Japan’s Topix index snapping a two-day advance to slide 2 percent. The gauge that excludes Japanese shares climbed 1 percent as the Hang Seng China Enterprises Index increased 0.4 percent amid data showing property prices rising in more Chinese cities during August.
The Shanghai Composite Index closed 0.4 percent higher, capping a weekly drop of about 3.2 percent. The Hang Seng China Enterprises Index has gained 3 percent this week amid a rebound in insurance shares.
China Resources Land Ltd. and China Overseas Land & Investment Ltd., the two biggest state-owned developers listed in Hong Kong, climbed more than 1.7 percent. New-home prices rose in 35 cities, compared with 31 in July, the National Bureau of Statistics said Friday. Prices dropped in 25 cities, fewer than the 29 in July, and were unchanged in 10.
China's property prices climbed in more cities during August. (Source: National Bureau of Statistics)
“It’s a supportive outcome for markets and provided a reminder the Fed’s not going to do anything stupid,” Shane Oliver, global strategist at AMP Capital Investors Ltd., which manages $112 billion, said by phone from Sydney. “If you’re overweight equities, you probably say: the Fed’s not going to harm us. It’s quite possible that this gets pushed out further and further, into next year.”
Nine of the 10 industry groups on the Asia-Pacific excluding Japan index advanced Friday. The measure has advanced 3.4 percent since Sept. 11, heading for only its second back-to-back weekly gain since April.
Australia’s S&P/ASX 200 Index added 0.5 percent, while the Kospi index climbed 1 percent in Seoul. India’s S&P BSE Sensex Index jumped 1.7 percent, heading for its biggest weekly increase since June.
(For more news on stocks, see TOP STK.)
Currencies
The Bloomberg Dollar Spot Index traded near its lowest level since Aug. 24. The yen rose 0.4 percent to 119.52 per dollar. The era of a weaker yen is coming to an end and Japan’s currency may strengthen toward 115 per dollar, according to Eisuke Sakakibara, a former vice finance minister.
The euro weakened 0.2 percent to $1.1416, having hit its strongest since Aug. 26 in the wake of the Fed’s decision. The joint currency was weaker against most of its 16 major peers Friday.
Australia’s dollar strengthened 0.7 percent, with the New Zealand dollar also gaining as investors were drawn to currencies with higher yields. India’s rupee surged 0.8 percent. Norway’s krone slid 0.3 percent as West Texas Intermediate crude retreated.
(For more news on currencies, see TOP FX.)
U.S. oil fell 1.3 percent Friday, paring its weekly advance to 3.8 percent. Oil is still down more than 20 percent from this year’s closing peak in June amid a global oversupply that Goldman Sachs Group Inc. predicts may keep prices low for the next 15 years. U.S. crude inventories decreased through Sept. 11 as output slid a sixth week, government data showed.
The Bloomberg Commodity Index fell 0.2 percent as metals retreated. Gold for immediate delivery was 0.3 percent lower at $1,128.66 per ounce. Copper for three-month delivery on the London Metal Exchange dropped 1 percent to $5,335 per metric tonne.
source: Bloomberg
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