Asia stocks head for biggest drop in more than a month as oil price falls below $40 a barrel

Japan’s announcement of £25.5bn stimulus package fails to ignite optimism that Shinzo Abe can revive the world’s third-biggest economy

Japan's stock market has fallen on a stimulus package that disappointed markets (Reuters)

Asia shares extended their drop as oil’s selloff revived concerns over global growth and after Japan’s fiscal stimulus package fell short of what some investors had expected. High-yielding currencies retreated.

Japan’s Topix index slipped for a third day after the yen, which typically moves at odds with local shares, jumped 1.5 per cent last session.

Crude halted losses below $40 a barrel before an update on US oil inventories, while gold was near its highest price since July 11. The Malaysian ringgit and New Zealand’s currency slid at least 0.6 per cent versus the dollar.

A four-week advance in global equities has faltered as crude descended into a bear market. With investors looking to central banks and governments around the world to shore up growth, Japan’s announcement on Tuesday that it would boost spending by 4.6 trillion yen (£25.5 billion) in the current fiscal year failed to ignite optimism that Shinzo Abe, Japan’s prime minister, can revive the world’s third-biggest economy. The Bank of England is projected to cut rates Thursday.

“After all the build-up, it’s a disappointment,” Shane Oliver, a global investment strategist at AMP Capital Investors in Sydney, said by phone, referring to Japan’s fiscal stimulus announcement.

This will be negative for Asian shares Wednesday, “reflecting the negative response we’ve already seen in the US and Europe overnight,” he said.

A slew of services purchasing managers’ indexes were due on Wednesday, with figures from China showing a slower pace of expansion in July than in June. Thailand is projected to hold benchmark rates in a policy review.

Shares

The MSCI Asia Pacific Index fell 1.3 per cent as of 12:41 pm Tokyo time, set for its lowest close in almost a week, as all 10 industry groups declined.

Australia’s S&P/ASX 200 Index slipped 1.1 per cent amid losses in banks. The Kospi index in Seoul slid 0.7 per cent. Hong Kong’s Hang Seng Index sank 1.7 per cent as trading resumed after the market was shut on Tuesday because of a storm. The Topix lost 1.5 per cent, and is down more than 3 per cent this week.

“A risk-off mood is coming to the forefront,” said Chihiro Ohta, a senior strategist at SMBC Nikko Securities Inc. in Tokyo. “In Japan, where many companies, especially in the car manufacturing sector, are easily affected by currency moves, the strength in the yen weighs on the overall profits for listed firms.”

E-mini futures on the S&P 500 retreated 0.1 per cent to 2,150.50 after the underlying index slipped 0.6 per cent Tuesday, led lower by retailers and industrial shares. The S&P 500 Index notched its first back-to-back declines since the aftermath of the U.K.’s decision to quit the European Union.

Currencies

The yen weakened 0.3 per cent to 101.19 per dollar, after touching 100.68 on Tuesday, its strongest level since 11 July.

The government’s plan incorporates 13.5 trillion yen of fiscal measures -- including 7.5 trillion yen in new spending starting this year, and 6 trillion yen in low-cost loans.

The Bloomberg Dollar Spot Index, a gauge of the US currency against 10 major peers, added 0.1 per cent, after sliding 0.6 per cent in the previous session amid waning bets on the Federal Reserve raising interest rates in 2016.

Bitcoin fell after one of the largest exchanges halted trading because hackers stole about $65 million of the digital currency. Bitcoin lost 3.7 per cent against the dollar, bringing its three-day drop to 17 per cent.

Bonds

Australian notes due in a decade yielded 1.93 per cent, up 11 basis points after they slid to an all-time low on Tuesday.

The Reserve Bank of Australia delivered its second quarter-point cut for 2016 that day, taking the cash rate to a record-low 1.5 per cent, as expected by a majority of economists and investors.

Yields on 10-year New Zealand debt added four basis points to 2.2 per cent, while rates on similar maturity Treasuries held at 1.56 per cent, following a two-day advance of about 10 basis points.

Bill Gross, the former chief investment officer of Pacific Investment Management Co., reiterated his warning on government debt Tuesday after yields touched all-time lows in the past month. The danger of the unprecedented rally, as Gross sees it, is that any reversal will be painful for investors.

Commodities

West Texas Intermediate crude added 0.6 per cent to $39.76 a barrel, after falling 5 per cent over the past two sessions.

“The decline is not totally unexpected, but the speed and severity of the fall has been a surprise,” said Daniel Hynes, senior commodity strategist at Australia & New Zealand Bank in Sydney. “Disruptions tightened the market during the second quarter and the sustainability of those was always going to be relatively short lived. There are still relatively high inventories but the market is approaching a balance.”

US oil inventories dropped by 1.34 million barrels and gasoline stockpiles fell, the American Petroleum Institute was said to have reported. Government data out Wednesday is forecast to show crude and motor fuel supplies decreased.

Gold for immediate delivery was little changed at £1,024 an ounce.

© Bloomberg