Asian Stocks Follow U.S. Market Lower as Washington Sets Tone

  • Investors react to Fed signals on shrinking balance sheet
  • At least ten subgroups of MSCI Asia Pacific Index decline

The Fed’s Communication Challenge on the Balance Sheet

Asian stocks followed the tone set for equities in Washington by the release of the Federal Reserve’s meeting minutes.

Benchmarks in Sydney, Tokyo and Hong Kong fell after U.S. shares were whipsawed by commentary that Fed officials considered stocks prices to be “quite high” and by a potential delay in tax reform. The MSCI Asia Pacific Index fell 0.8 percent to 146.23 as of 4:26 p.m. in Hong Kong as 10 groups declined.

The minutes of last month’s meeting also showed many Fed officials favored shrinking the bank’s $4.5 trillion balance sheet. Later in the U.S. day, House Speaker Paul Ryan said reforming the country’s tax code, cheered by investors as a pro-growth move, could take longer than a health-care overhaul.

“Reducing the balance sheet is the last thing the market wants to hear,” said Jeffrosenberg Tan, the head of strategy at PT Sinarmas Sekuritas. “The liquidity in the market will be reduced and volatility will continue, at least in the short term.”

The region-wide MSCI gauge had gained 9.2 percent this year as of Wednesday amid signals from the Fed that the U.S. economy, the world’s largest, is in good condition. The number of officials who see a chance of better-than-forecast outcomes for employment and inflation rose to the most since the bank began publishing the assessments with the January 2012 meeting, the minutes showed.

India’s central bank is scheduled to rule on rates later Thursday. All 52 economists in a Bloomberg survey predict the RBI will leave the repurchase rate unchanged at 6.25 percent.

Summary

  • Japan’s Topix closed 1.6% lower, Nikkei 225 Stock Average -1.4%; yen +0.2%
    • Toyota Motor -1.7%, Mitsubishi UFJ -1.7%
  • Hang Seng China Enterprises Index -0.9%, Hang Seng Index -0.5%, Shanghai Composite Index +0.3%
  • Australia’s S&P/ASX 200 Index -0.3%; New Zealand’s S&P/NZX 50 Index +0.3%; 
  • South Korea’s Kospi index -0.4%
  • Philippine Stock Exchange PSEi Index -0.3%; FTSE Bursa Malaysia KLCI Index -0.3%; Straits Times Index -0.1%; Jakarta Composite Index -0.3%, BSE Sensex Index -0.4%
    • Markets closed in Vietnam, Thailand
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