Asian markets fall, dollar rises as US rate fears return

Hong Kong: Asian markets tumbled with Wall Street and the dollar extended gains Wednesday as US interest rate worries resurfaced, while geopolitical issues are also keeping investors cautious.

After enjoying a relatively purple patch over the past week, investors were put back on the back foot by solid retail sales data that pointed to a surge in inflation that could push the Federal Reserve to hike borrowing costs three more times this year.

The news boosted expectations for the world’s number one economy and sent benchmark 10-year Treasury yields to a seven-year high.

But the prospect of debt costing more to service hit equities, sending all three main indexes on Wall Street lower.

The losses spread to Asia with Hong Kong falling one percent and Shanghai 0.4 percent off.

Tokyo ended the morning session 0.4 percent lower after data showed Japan’s economy contracted in January-March for the first time in two years.

Singapore shed 0.2 percent while Wellington and Manila both sank more than one percent. Jakarta and Taipei were also lower but Sydney rose 0.5 percent and Seoul edged up 0.1 percent.

The dollar, which benefits from higher US rates, climbed across the board, holding above 110 yen for the first time since early February.

The euro is at its weakest levels this year, with a series of soft economic data out of the eurozone denting the prospects of an end to the European Central Bank’s crisis-era stimulus. And the pound continues to be dampened by Brexit uncertainty.

– ‘Eye on North Korea’ –

The greenback also surged against high-yielding currencies, with the South Korean won 0.5 percent off and Australia’s dollar 0.7 percent lower.

North Korea once again moved into the spotlight after it cancelled a meeting with South Korea at the last minute, blaming joint US-South korean military exercises it called “rude and wicked provocation”.

It added that was “a limit in showing goodwill and offering opportunity”, according to the North’s official KCNA news agency.

The news came as a surprise after weeks of thawing relations and just weeks ahead of a planned historic summit between Donald Trump and Kim Jong Un.

“Keep an eye on North Korea,” said Greg McKenna, chief market strategist at AxiTrader. “While the South and the US are used to playing these international games the (North) and its leader … are neophytes excited by the prospect of getting a seat at the top table.

“No doubt back channels are being exhausted explaining what’s going on. But while success seems to be the most likely outcome nothing is certain from this Trump-Kim meeting.”

Pyongyang’s shock announcement came as investors are juggling several other global issues, including the outcome of Trump’s decision to pull out of the Iran nuclear deal, ongoing turmoil in the Middle East and the China-US trade spat.

There are hopes for a positive conclusion to the tariff stand-off between Washington and Beijing, but the latest round of talks will be closely monitored after a previous high-level meeting ended with no agreement and both sides far apart.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.4 percent at 22,731.09 (break)

Hong Kong – Hang Seng: DOWN 1.0 percent at 30,843.33

Shanghai – Composite: DOWN 0.4 percent at 3,178.43

Euro/dollar: DOWN to $1.1818 from $1.1838 at 2100 GMT

Pound/dollar: DOWN to $1.3487 from $1.3506

Dollar/yen: UP to 110.35 yen from 110.33 yen

Oil – West Texas Intermediate: DOWN 30 cents to $71.01

Oil – Brent North Sea: DOWN 33 cents to $78.10 per barrel

New York – Dow: DOWN 0.78 percent to 24,706.41 (close)

London – FTSE 100: UP 0.2 percent at 7,722.98 (close)