Hong Kong: Asian stocks slid on Tuesday, snapping a five-day rally as concerns about the health of US banks resurfaced, while expectations that Australian rates would not fall much further kept the Australian dollar steady.
European stock market futures pointed to a higher open, with investors hoping the US results season will not be so dire.
Gloomy comments from high-profile US bank analysts overnight, as well as a dark prognosis on the financial system from billionaire investor George Soros, weighed on Wall Street and supported gold prices.
Adding to unease about the financial sector, the International Monetary Fund is expected to report in coming weeks that US bad assets could climb to as much as $3.1 trillion, far more than the $2.2 trillion the institution had earlier forecast, The Times newspaper reported.
The MSCI index of Asia Pacific stocks outside Japan fell 1.25%, after briefly touching a six-month high on Monday. The index, now at 264.20, has not been able to clear 270 since October 2008.
In Japan, shares of top bank Mitsubishi UFJ Financial Group were down 1.2% and Shinsei Bank was off 4.4%.
The Nikkei share average slipped 0.3%, with weakness in bank stocks winning out over strength in automaker shares, which have continued to gain on hopes General Motors will be able to avoid an industry-splintering collapse.
The global banking system and financial markets are likely to remain on shaky ground, impeding hopes for economic recovery, until the mountain of bad loans, mortgages and financial derivatives is cleared.
“The market’s stance on banks had been too optimistic recently,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities in Tokyo. “Some large US banks have already passed stress tests, but others haven’t, and given that results are coming up soon, this simply reignited investor uncertainty.” Australia Bank dropped 2.3% and Macquarie Group Ltd was down 4%.
The benchmark S&P/ASX 200 index fell 1.2% after hitting a three-month high on Monday.Hong Kong’s Hang Seng index slid 1.1% led by HSBC stock, which dropped 1.7%.
Even before the comments on banks, stock traders wondered when the market would pause for breath after a 10% rally in the last five days pushed a benchmark Asia ex-Japan equities index up against a major technical obstacle on the charts.
Bank stocks were also under fire in Australia, where National
Australia’s central bank surprised some in the market by cutting rates by a quarter point, disappointing some who had thought recent data warranted a more aggressive move.
The US dollar slipped 0.4% to ¥100.60, after rising above ¥101.40 on Monday, the highest since late October, as equities slid.
The dollar has strengthened by some ¥12 since February, as more investors dump what has been considered relative safety in the yen for higher returns elsewhere.
“The relationship has been firmly set that the US dollar strengthens during episodes of risk aversion. Last week’s rally in equity markets was certainly of questionable sustainability given it was in part fuelled by changes to accounting law,” said Ashley Davies, currency strategist with UBS in Singapore in a note.
Gold prices rose 0.9% to $877 an ounce in the spot market after hitting a near three-month low on Monday.
US crude for May delivery rose 1% to $51.58 a barrel ahead of weekly US inventories data. Oil prices have been tracking rallying equity markets and have gained around $15 since mid February.
The US government bond market continued to be mostly governed by expectations about upcoming supply and whether demand would hold up.
The yield on the US benchmark 10-year note was at 2.91%, dipping from 2.94% where it ended New York trade.