Asian Stock Rally Fades Amid Fed Rate Outlook as Oil Declines

The Chinese and European Challenges Facing Investors
  • Chances of a September hike in U.S. interest rates diminish
  • International Energy Agency Sees Oil Glut Persisting in 2017

Asian stocks reversed gains amid the highest volatility in two months as investors assessed the outlook for U.S. monetary policy and crude oil retreated.

The MSCI Asia Pacific Index fell 0.1 percent to 137.51 as of 4:35 p.m. in Hong Kong, after earlier rising as much as 0.7 percent. Its 10-day volatility reached the highest since July 7. Singapore and Indonesia led equity losses as they resumed trading after a holiday. Oil futures sank more than 2 percent after the International Energy Agency said the glut will persist into late 2017. Asian shares had edged higher earlier amid signs China’s economy is rebounding and following dovish comments from Federal Reserve board member Lael Brainard.

Stock markets have been whipsawed in recent weeks amid opposing views from Fed officials as investors seek more clarity on the U.S. central bank’s next policy move. Brainard said she sees no reason to rush to raise rates because right now there seems little need to lean against an overshoot of inflation or employment. Her speech followed comments by Boston Fed President Eric Rosengren, who said last week the U.S. economy could overheat if the central bank waited too long to tighten, potentially spurring a global rout in equities.

“Markets are really struggling to read the runes of Fed statements,” said Andrew Parry, London-based head of equities at Hermes Fund Managers Ltd. “Only last week they were talking about the need to have an early rate rise. They are still very nervous about the process of normalization,” he said in a Bloomberg TV interview.

Brainard’s comments come after financial markets were jolted out of a period of relative calm on concern some of the world’s central bankers have begun questioning the ability of loose monetary policy to ignite price growth and support economic expansion. As the last Fed official to speak before next week’s meeting, she spurred a decrease in the odds of a September rate increase to 22 percent from 32 percent a week ago.

Hong Kong’s Hang Seng Index fell 0.3 percent, reversing earlier advances, amid speculation that better-than-expected Chinese economic data will deter policy makers from easing monetary policy. Reports on Tuesday showed China’s industrial production, investment and retail sales all exceeded economist estimates in August.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong retreated 0.9 percent, while the Shanghai Composite Index added 0.1 percent.

Singapore Slumps

South Korea’s Kospi index added 0.4 percent, Australia’s S&P/ASX 200 Index lost 0.2 percent and New Zealand’s S&P/NZX 50 Index dropped 0.4 percent. Taiwan’s Taiex index lost 0.1 percent. Singapore’s Straits Times Index tumbled 1.9 percent, the most since June 24 and the Jakarta Composite Index sank 1.1 percent. Thai stocks climbed 1.4 percent following the worst four-day drop since December 2014. India is closed for a holiday.

Most Japanese stocks ended higher after Japan’s Topix index fluctuated throughout the day before closing little changed. The Bank of Japan meets next week with investors left guessing about the prospects for further stimulus after comments from Governor Haruhiko Kuroda last week.

E-mini futures on the S&P 500 slipped 0.7 percent after the underlying gauge rallied 1.5 percent on Monday, recouping some of Friday’s 2.4 percent slump.

Samsung Electronics Co. rose 4.2 percent in Seoul, rebounding from Monday’s 7 percent slide. Regulators, airlines and Samsung have warned customers to stop using Note 7 phones, plagued by reports that the batteries catch fire while charging.

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