Markets in Asia dropped sharply on Friday, with the Nikkei tumbling, after a sell-off on Wall Street as oil remained volatile and concerns about how central banks’ easing measures will affect banks’ earnings persisted.
“The idea that central banks are now fully targeting the interest rate structure and putting a gun to domestic banks heads in a fight to stoke credit growth is in no way an equity friendly story,” wrote Chris Weston, chief market strategist at spreadbetter IG, in a morning note. The Bank of Japan blindsided markets on January 29 by cutting its benchmark rate into negative territory in a move that’s sparked concerns over banks’ earnings.
Japan’s Nikkei 225, which reopened after a public holiday on Thursday, dropped 5.34 percent, on course to fall for seven of the past eight sessions. The Nikkei 225 has been on a downward spiral in recent days, as the yen rapidly strengthened against the dollar, with the index closing Wednesday down 24.70 percent from its 52-week high set in June 2015.
“The heightened volatility in financial markets could adversely impact the real economy. It may dampen business confidence, disincentivizing Japanese companies from investing and raising wages. It may also discourage banks from lending and expanding the balance sheets,” DBS said in a note Friday. “If the financial market jitters spread and business plans are postponed broadly elsewhere, Japan’s exports would also be depressed.”
During Asian trade, the dollar-yen pair was down 0.22 percent at 112.16, up from a session low of 111.91; it had traded as low as 110.98 on Thursday. The yen has risen sharply since the BOJ‘s move to a negative interest rate policy.
That’s prompting some analysts to revise their forecasts for the dollar-yen pair. Barclays said in a note Friday that it believes the yen had been “excessively” undervalued compared with the country’s economic fundamentals and that’s now unwinding. It expects the dollar-yen pair to fall as low as 100 by end of the first quarter and 95 by year end.
In Australia, the S&P/ASX 200 traded down 1.02 percent, weighed by the financial sector, which shed 1.41 percent.
In South Korea, the Kospi was down 2.15 percent, while Hong Kong’sHang Seng index slipped 1.09 percent on its second day of trade this week. Both the Korean and Hong Kong markets were closed from Monday through Wednesday for the Lunar New Year holidays.
Mainland Chinese markets and Taiwan will resume trade next week.
Banking stocks under pressure
Asia’s banks and financial stocks remained under pressure, following drops in their Europe and the U.S. counterparts as concerns mounted over their potential performance in a low-growth and low-interest rate environment.
South Korean brokerages were down between 0.12 and 3.23 percent;Samsung Securities fell 2.80 percent, while Daewoo Securities was down 2.27 percent.
Overnight, European banking equities extended recent declines, pushing the STOXX 600 European bank index down 6.3 percent by the end of trade.
Sweden’s central bank yesterday slashed its already negative deposit rates from negative-35 basis points to negative-50 basis points.
Oil gains 5% in Asian trade
Oil prices remained volatile, registering gains in Asian trade after a downward slight overnight on the back of a build-up in global inventories.
U.S. crude retraced losses of 4.5 percent overnight to trade up 4.81 percent in Asian hours at $27.47 a barrel. Global benchmark Brent was up 4.36 percent at $31.37 a barrel after sliding 2.5 percent overnight.
Energy plays traded mixed, with shares of Santos rising 4.59 percent and Woodside Petroleum retracing gains of 0.17 percent to trade down 0.52 percent, while Japan’s Inpex fell 5.02 percent and Japan Petroleum slid 4.05 percent.
The Wall Street Journal reported that according to UAE’s energy minister, OPEC was ready to cooperate on production cuts, But skepticism in the market remained; in recent weeks both Russia and Venezuela have called for OPEC and other major oil producers to cut output and Iran has said it is ready to cooperate on output, all apparently without making any headway.
Bluescope shares up 14%
Shares of steelmaker Bluescope were up 14.16 percent, after a profit upgrade. The steelmaker projected earnings for the first half of fiscal 2016 would be A$230 million, up from an earlier projection of about A$180 million. Reports said the company cited accelerated cost-cutting, better margins and rising demand in Australia as reasons for the profit upgrade.
Rio Tinto reported annual losses after Thursday’s market close and scrapped its progressive dividend policy, broadly in line with market expectations, citing worsening global economic conditions and downturn in commodity prices. Rio Tinto reported a net loss of $866 million for 2015, compared with a $6.53 billion profit the previous year.
The price of gold was off 0.84 percent at $1,236.10 an ounce during Asian hours after jumping more than 5 percent in overnight trade to a one-year high. The precious metal is usually considered a safe-haven investment at times of market volatility.
Mark Matthews from Bank Julius Baer said in a note that at any moment a rally in risk could send the precious metal back down. But Matthews added, “Few market participants think that rally, when it comes, will be sustainable, and after that markets will remain in a southerly direction for the next few months.”
“In which case, there is more room for gold (and its proxies) to move higher,” added Matthews.
Major indexes in the U.S. finished lower, with the Dow Jones industrial average closing 254.56 points, or 1.6 percent, lower at 15,660.18. TheS&P 500 slipped 22.78 points, or 1.23 percent, to 1,829.08 and theNasdaq composite was down 16.76 points, or 0.39 percent, at 4,266.84.