Tuesday, April 11, 2017

Tuesday, April 11, Morning Global Market Roundup: Investors Flee Risk Assets As Geopolitical Tensions Heat Up

By Nichola Saminather 
April 11, 2017

Asian stocks fell on Tuesday as the political tinderbox in the Middle East and the Korean Peninsula added to uncertainty over the looming French vote, pushing nervous investors into safer assets such as the yen and Treasuries.

Even oil, which advanced earlier on supply concerns in the wake of U.S. missile strikes on a Syrian air base last week and a shutdown at a Libyan oilfield, reversed to trade lower, breaking its multi-session winning streak.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.3 percent.

"Most Asian markets could be seen with moderate changes this morning amid a mixed trend," said Jingyi Pan, market strategist at IG in Singapore. "Price movements here appear to be largely mirroring those in the U.S., with key corporate earnings due later in the week and could be the reason that investors are still holding onto equities."

The heightened geopolitical risks come at a time when the global economy has shown steady improvement, led by the United States and encouraging momentum in export-reliant Asia.

Tokyo's Nikkei .N225 closed 0.3 percent lower, dragged down by a stronger yen. Toshiba Corp. (6502.T) was among the biggest decliners, ending the day 2.7 percent lower, with the conglomerate expected to file its twice-delayed earnings results on Tuesday, without a full sign-off by auditors.

Accountants question the numbers at the company's U.S. nuclear subsidiary Westinghouse Electric Co., where massive cost overruns have pushed the Japanese parent company to the brink.

Chinese shares .CSI300 lost 0.4 percent, while Hong Kong stocks .HSI slumped 0.9 percent.

South Korean shares .KS11 and Taiwan .TWII were also lower.

Australian stocks reversed earlier losses to climb 0.3 percent, after a measure of business conditions hit the highest level in a decade. They earlier hit their highest level since April 2015 for the second session in a row.

The Australian dollar AUD=D4 was flat at $0.7501, paring earlier gains.

Overnight, Wall Street ended a choppy session little changed, weighed down by nervousness about quarterly corporate earnings later this week.

The depressed sentiment pulled 10-year U.S. Treasury yields down to 2.3427 percent on Tuesday from Monday's 2.361 percent close.

British Prime Minister Theresa May spoke on Monday with U.S. President Donald Trump and agreed that "a window of opportunity" exists to persuade Russia to break ties with Syrian President Bashar al-Assad, May's office said.

Trump is open to authorizing additional strikes on Syria if the use of chemical weapons continues in the country, the White House said on Monday.

Investors are also nervous about the possibility of U.S. military action against North Korea after the strikes in Syria.

A U.S. Navy strike group headed toward the western Pacific Ocean near the Korean peninsula as a show of force, while South Korea's acting president ordered the military to intensify monitoring of the North's activities.

China and South Korea agreed on Monday to tougher sanctions on North Korea if it carries out nuclear or long-range missile tests.

In France, polls for many weeks have been showing centrist Emmanuel Macron and far-right leader Marine Le Pen on track to top the first round of voting on April 23 and go through to a May 7 runoff.

While Le Pen's plans to ditch the euro and hold a referendum on European Union membership have spooked many investors, recent polls have pointed to a tighter race, with support for far-left candidate Jean-Luc Melenchon surging recently.

That has sent the spread between German DE10YT=RR and French FR10YT=RR 10-year government bonds soaring to the widest since Feb. 22.

"After Britain’s Brexit referendum and the U.S. presidential election surprised markets in 2016, could this event do the same?," Mark Burgess, global head of equities at Columbia Threadneedle in London, wrote in a note.

"As a Le Pen presidency is perceived to increase the likelihood of France’s withdrawal from the EU, the uncertainty is likely to continue about what this could mean for the euro, along with a potential wider hit to global markets."

The euro EUR=EBS pulled back 0.1 percent to $1.0587, ahead of data including German economic sentiment, UK price inflation and Eurozone industrial production later on Tuesday.

The dollar fell 0.3 percent to 110.65 yen JPY=, extending losses from Monday.

The dollar index .DXY, which tracks the greenback against a basket of major trade-weighted peers, was flat at 101.03, failing to rebound from Monday's 0.16 percent loss.

Federal Reserve Chair Janet Yellen said on Monday the central bank's plans to raise interest rates gradually are aimed at maintaining employment and inflation rather than boost growth.

Crude retreated from five-week highs hit earlier in the session as concerns about rising U.S. shale production offset a shutdown at Libya's largest oilfield over the weekend and the U.S. strikes against Syria that had supported prices.

U.S. crude CLc1 pulled back 14 cents to $52.95 a barrel, after rising for the previous five sessions.

Global benchmark Brent LCOc1 fell 10 cents to $55.89, breaking a six-session winning streak.

The market jitters and a weaker dollar supported gold, which advanced for a third straight day.

Spot gold XAU= was 0.2 percent higher at $1,256.50 an ounce.

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