Asian shares slip as Fed, Brexit loom

What have central banks got in the kitty this time around?

“Investors concerned about the possibility of Brexit and yen strength may weigh down the Nikkei today, leading to a third day in a row drop of the N225”, said Hiroki Allen, chief representative of Superfund Securities Japan in Tokyo.

While the US Federal Reserve is expected to leave interest rates unchanged on Wednesday, its post-meeting statement will be scrutinised for signals regarding the timing of the next hike in borrowing costs. Since early last week, gold has fluctuated in line with the Brexit opinion polls, even dislocating it from its usual primary-link with the U.S. Dollar.

The yen neared a three-year high against the British pound Monday as concerns over next week’s United Kingdom vote on European Union membership drove investors into assets perceived as safe. Oil retreated after a report showed an increase in U.S. drilling rigs, while gold climbed to a four-week high.

Investors across Asia remained cautious again on Tuesday ahead of several key events in the coming two weeks, including the UK’s European Union referendum.

Japan’s Nikkei Stock Average NIK, -1.42% was down 1.3%, Korea’s Kospi SEU, -0.47% fell 0.4% and Australia’s S&P/ASX 200 XJO, -2.11% lost 1.8%.

In overnight releases, China’s May economic data was generally in line or softer than expected. Moreover, China’s statistics bureau said there remain downward pressures within the economy.

Crude oil prices continued to slip, pressured by the strong USA dollar and worrying economic prospects in Europe and Asia, though losses were contained by ongoing supply outages in Nigeria. Higher crude prices are motivating producers to restart closed wells and maybe increase supply.

Brent LCOc1 was down 1 percent at $49.83 per barrel, while US crude CLc1 also shed 1 percent to $48.37.

Gold for immediate delivery rose as much as 0.8 per cent to $1,284.29 an ounce, the highest since May 16.

G7 debt paper continues to rally hard with the global equity selloff.

“Investors are caught in a binary situation now, either BOJ is going to intervene, or not”, d’Assier said.

The 20-year yield was down half a basis point at 0.165 percent after touching 0.155 percent, also a fresh record low. Yields on JGBs with maturities out to 15-years were well into negative territory. The German 10-year Bund yield remained near zero, while the 10-year Japanese government bond yield was at -0.16 percent. It’s this foreign demand that has U.S Treasuries better bid further out the curve.

The major exporters are sharply lower.

Dean Popplewell has almost two decades of experience trading currencies and fixed income instruments.

“If you look at when the market goes up, is it going up because the fundamentals are improving? No”. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns.