Hong Kong: The yen strengthened across the board on 14 August as risk appetite remained weak amid ongoing credit concerns, while Asian stocks succumbed to modest selling pressure following a negative lead from Wall Street.
But there was no sign of the panic selling seen late last week as central banks around the world have pumped extra money into financial systems, calming fears over the dangers of a credit squeeze.
Lingering worries about the credit market woes also drove investors to safe-haven bets including Japanese government bonds (JBGs), helping push the benchmark 10-year yield down to levels last seen in May.
“The concern this morning is that even though equity markets stabilised last night, you continued to see yen crosses under pressure and so therefore suggesting that the risk unwind has got further to go in forex markets,” said Jo Masters, associate director at Macquarie Bank.
Financial markets around the world have been hit hard by a constant flow of news about problems in banks and funds exposed to risky investment in US mortgage and asset-backed markets.
That has prompted investors to unwind risky carry trades, giving the yen a boost. In a carry trade, investors borrow low interest rate currencies such as the yen to buy riskier but higher yielding assets.
The dollar fell below 118 yen from around 118.20 yen in late New York trade, while the euro slipped below 160.50 yen towards a four-month low of 159.98 yen set late last week.
The single currency was also under pressure against the dollar, dipping briefly to a one-month low near $1.3600 as doubts grew about a rate hike by the European Central Bank next month.
“A September move is not a done deal as some people have priced in,” Masters said.
By the end of morning trade, Tokyo’s Nikkei average was flat while MSCI’s measure of Asia Pacific stocks excluding Japan slipped 0.4% by 0217 GMT.
The MSCI index is down nearly 10% from the record high set on 24 July but held just above a 1-month trough plumbed last Friday 10 August.
“Bargain hunting appears to be the main force in the market, and that is why the market lacks a punch,” said Zenshiro Mizuno, a senior managing director at Marusan Securities.
US stocks closed little changed on 13 August as concerns about subprime mortgage exposure haunted financial shares despite news of a $3 billion rescue package Goldman Sachs Group Inc. organised for a hedge fund hammered by recent market turmoil.
Financial stocks followed their US peers lower with Japan’s Mizuho Financial and Australia’s Macquarie Bank both down more than 1%, while Singapore’s United Overseas Bank shed 0.5%.
Investors dumped Japan’s Bookoff after the top book store chain’s profit disappointed, but they snapped up Australian electronics retailer JB Hi-Fi, sending the stock up nearly 12%, after the firm’s strong results.
Among regional markets, South Korea’s KOSPI and Australia’s S&P/ASX 200 index were down about 0.5%, while Hong Kong’s Hang Seng Index was little changed.
Demand for less risky assets helped drive JGBs higher, pushing the yield on the benchmark 10-year bond down 0.5 basis point to 1.705%. Earlier, the yield touched a 2-month low of 1.700%.
“I think its hard to aggressively build up short JGB positions at this point,” said Takafumi Yamawaki, a fixed income strategist at Morgan Stanley.
London Brent crude was steady, up just 2 cents at $70.25 a barrel after Monday’s brief spike towards $72 amid concerns about storms stirring in the Atlantic basin.