Asian Stocks End Six-Day Slump as Fed Rate-Increase Bets Wither

  • Reports show weak U.S. industrial production and retail sales
  • Markets are shut for holidays in China, South Korea and Taiwan

Asian stocks rebounded from the longest losing streak since May after weaker-than-anticipated U.S. data triggered a delay in investor expectations for a U.S. interest-rate increase, spurring a rally in risk assets. 

The MSCI Asia Pacific Index rose 0.6 percent to 137.35 as of 3:44 p.m. in Tokyo, halting a six-day run of declines and paring this week’s loss to 2.1 percent. Reports Thursday showed U.S. industrial production contracted more than forecast, while retail sales unexpectedly slid, sending the odds for a rate increase from the Federal Reserve next week to less than 20 percent. About $2 trillion was erased from the value of global equity markets in the past week amid concern central banks are reluctant to boost stimulus even as the global economy sputters.

“The bulls have wrestled some sort of control,” said Chris Weston, Melbourne-based chief market strategist at IG Ltd. “Anyone left calling for a September hike next week from the Federal Reserve must be feeling a bit hot under the collar after further signs of economic vulnerabilities.”

After charging through the second quarter, the U.S. consumer is showing signs of exhaustion at the start of the second half of 2016, with core sales falling 0.1 percent in August. Industrial production declined 0.4 percent, worse than economists’ forecast for a 0.2 percent drop. Traders are now pricing in an 18 percent chance of a rate increase at the Fed’s meeting on Sept. 21, down from 34 percent at the start of the month and 20 percent before the data.

The Bank of England on Thursday maintained its level of asset purchases, with attention now switching to the Fed and the Bank of Japan, both of which meet to review policy next week. Forecasts on what the BOJ may decide vary, with everything from increasing buying of government bonds, further deepening negative rates, or no action being taken at all being floated as possibilities.

“Expectations of what the BOJ might announce next Wednesday, be it more easing or more tightening, are unprecedented in their divergence,” said Christopher Wood, chief equity strategist at CLSA Ltd. in Hong Kong. “The result is even more uncertainty than normal, creating a potentially extremely perilous environment for macro speculators.”

Regional Trading

Japan’s Topix index rose 0.8 percent as banks rebounded. The measure will be closed on Monday and Thursday next week, while the BOJ’s decision will be announced on Wednesday. Singapore’s Straits Times Index climbed 0.6 percent and Indonesia’s Jakarta Composite Index added 0.2 percent. Australia’s S&P/ASX 200 Index gained 1.1 percent and New Zealand’s S&P/NZX 50 Index advanced 0.8 percent. Markets are shut for holidays on Friday in China, Hong Kong, Taiwan, Malaysia and South Korea.

Investors have sold everything from raw-materials companies to utilities in what has been the biggest weekly loss for the MSCI Asia Pacific index since June. Japanese banks were hit hard this week amid concern a deeper dive into negative rates by the BOJ will curb an earnings recovery. Mitsubishi UFJ Financial Group Inc.’s main lending unit urged the central bank to consider the side effects of negative interest rates at next week’s meeting, saying the policy will continue to squeeze lending income. While bank shares recovered some losses Friday, they still posted the worst performance in 10 weeks.

“There’s more indecision and more splits within the Bank of Japan over the types of mechanisms they’re going to be using for providing additional stimulus,” Stephen Innes, a New York-based trader at Oanda Corp., told Bloomberg Radio. “At this stage we’re still not really sure what they have up their sleeve. That’s got traders a little bit distressed. We have to remember the Bank of Japan has a penchant for surprise and that’s always a concern.”

Apple Inc. suppliers surged after the iPhone maker climbed to its highest since December in the U.S. amid growing optimism over the iPhone 7’s market reception. Japan Display Inc. soared 11 percent and Alps Electric Co. rose 6.3 percent. Murata Manufacturing Co. gained 4.2 percent.

Futures on the S&P 500 Index slipped 0.2 percent. The underlying measure gained 1 percent on Thursday following a two-day drop of 1.5 percent that left the index at its lowest point since July 7 as Apple extended gains into a fourth day and a rebound in crude prices boosted energy stocks.

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