Monday, 12 September 2016

Hong Kong notches biggest drop since February as Asian stocks plunge

Asian shares started the week notably weaker as fears of a possible U.S. interest-rate increase gripped markets, with investors assessing the potential impact on growth.

“We are taking the selloff in the U.S. [on Friday] very, very seriously,” said Amir Anvarzadeh, global head of equity sales for Japan at BGC Partners. He said the equities weakness on both sides of the Pacific indicates a reversal in trend. “Whatever growth we are getting [globally] could slow down” if interest rates rise, Anvarzadeh added.

Emerging markets in Asia are particularly vulnerable to a rate increase in the U.S. as better returns there could prompt a flight of capital from less-developed areas. But some say strong growth and the potential for earnings to pick up faster in Asia will temper any sharp withdrawals.

After U.S. stocks on Friday posted the biggest declines since the initial post-Brexit drops, following a summer devoid of volatility in equities trading there, Australia’s S&P/ASX 200 XJO, -2.24% declined 2.2% Monday and Taiwan’s Taiex Y9999, -1.18% dropped 1.2% — both finishing at their lowest levels in two months.

Hong Kong’s Hang Seng Index HSI, -3.36% skidded 3.3% to 23,310.33, the biggest drop since February.

The Shanghai Composite SHCOMP, -1.85% shed 1.9%, finishing at a 1-month low, and the Nikkei Stock Average NIK, -1.73% ended down 1.7%.

Korea’s Kospi SEU, -2.28% , which notched its largest decline in two months Friday, topped that with a 2.3% decline. Samsung Electronics Co. 005930, -6.98% SSNHZ, +0.00% ,which makes up one-sixth of the index, notched its biggest decline in four years, with a 7% slide on more worries about the Galaxy Note 7.

Easy monetary policies have propped up asset prices globally since the financial crisis nearly a decade ago. “Record capital outflows from Japan in recent months, if not years, oiled the wheels of global finance,” said Frederic Neumann, co-head of Asian Economics Research at HSBC.

Alex Furber, a senior client services executive at CMC Markets in Singapore, added: “U.S. stocks were overvalued, and a correction there was due for some time.”



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HP Inc buying Samsung’s printer business for $1.05 Billion

HP Inc. sees its future in copiers and printers.

The personal-computer maker has agreed to buy Samsung Electronics Co.’s printer business for $1.05 billion, betting that it can grab share and generate income, even in a shrinking global market.

The deal will add to earnings in the first full year, Palo Alto, California-based HP said in a statement Monday. As part of the agreement, Samsung has committed to buy $100 million to $300 million worth of HP shares on the open market after the acquisition closes, the companies said.

The merger opens up a path for HP to focus more on the copier market and get its hands on key laser-printing technology. It’s also part of a bigger plan by the company to expand its portfolio beyond its well-known line of printers and find new sources of growth as smartphones, tablets and other digital devices reduce the need for traditional paper printing.

The acquisition is the biggest since HP split from Hewlett Packard Enterprise Co. last year to focus on personal computers and related hardware.

“This is a major strategic move for HP,” Enrique Lores, president of Imaging, Printing & Solutions at HP, said on a conference call. “The separation is really working.”

Still, revenue in HP’s printing division fell 14% to $4.42 billion in the latest quarter, while total sales fell about 4% to $11.9 billion.

When the company reported earnings last month, it said restructuring activities were on track for the fiscal year, including about 3,000 job cuts. HP has a small presence in the office copier market, which is dominated by the likes of Xerox Corp.

For Suwon, South Korea-based Samsung, the divestment is part of a longer-term push to focus on more high-growth areas.

“The sale of printers makes perfect sense because the world of paper is going away,” said Mark Newman, an analyst at Sanford C. Bernstein in Hong Kong.

“Printers don’t have much future. It’s all going to be screens and Samsung is the biggest display maker in the world.”

The printer deal is expected to close in about 12 months and is subject to approvals, the companies said.

HP will receive more than 6,500 patents from Samsung, Lores said, adding to its intellectual-property lineup. Samsung’s laser capabilities are more suited for the large copiers that are built for heavy use at company offices. HP relies on Canon Inc. for key laser technology in some of its printers.

Deal activity in the printing sector is picking up. Earlier this year, Lexmark International Inc. agreed to be acquired by an investment consortium led by Apex Technology Co. and PAG Asia Capital in a transaction that values the company at $3.6 billion.



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Stocks, bonds suffer central bank anxiety attack

Asian shares suffered their sharpest setback since June on Monday as investors were rattled by rising bond yields and talk the Federal Reserve might be serious about lifting U.S. interest rates as early as next week.

European bourses were also tipped to open with losses stretching from 1.4% for the FTSE to 2.2% for the DAX.

Reports that the Bank of Japan was considering ways to steepen the Japanese yield curve, along with worries that central banks more generally were running short of fresh stimulus options, hit sovereign debt and risk appetite globally.

MSCI’s broadest index of Asia-Pacific shares outside Japan  fell 2.4%, pulling away from a 13-month peak. It was the largest daily drop since the frenzy caused by Britain’s vote in late June to leave the European Union.

On a technical basis the index had been overbought in recent sessions, leaving it vulnerable to a pullback. Hong Kong, Shanghai and Australian stocks followed with falls of more than 2 percent.

The Nikkei 225 lost 2% as the safe haven yen firmed and selling in bonds drove yields on 20-year JGBs to the highest since March.

Traders were unsure how the BOJ would try to steepen the yield curve if it goes down that path at a policy review later this month, but markets are worried that tapering of its buying in long-dated bonds could be among the options.

EMini futures for the S&P 500, traded in Chicago during Asian hours, swung 0.6% lower, though Treasuries were finding safe-haven demand.

Some Fed members have been trying to convince markets that the September meeting would be “live” for a hike, even though futures (0-FF:) only imply a one-in-four chance of a move.
No less than three Fed officials are expected to speak later in the day, including board member and noted dove Lael Brainard.

Any hint of hawkishness would likely further pressure bonds and equities.

“Market participants are wondering if maybe she (Brainard) is being wheeled out to give the market one last warning of a rate hike at next week’s meeting,” said Marshall Gittler, head of research at broker FXPRIMUS.

“The thinking is that if someone as dovish as she is starts talking like a hawk, people will notice. Her speech will be closely examined.” Such risks led Wall Street’s fear gauge, the VIX index , to its highest close since late June on Friday. The Dow  shed 2.13% on Friday, while the S&P 500 lost 2.45% and the Nasdaq 2.54% .

Super-low yields have made returns on equities seem relatively more attractive in comparison, so any sustained climb in yields would likely weigh on stock valuations.

The yield on benchmark German debt, for instance, had turned positive for the first time since July 22 and ended at 0.02%, its highest since June 23. Yields on U.S. 10-year and 30-year paper hit 11-week peaks.

In the forex market, the sudden bout of risk aversion benefited perceived havens such as the yen while hitting carry trades in higher yielding currencies including the Australian dollar.

The Aussie has lost 1.5% against the yen in two sessions to stand at 77.21, while the Japanese currency was firm on the U.S. dollar at 102.55.

The euro was sidelined on the dollar at $1.1242 after weak German trade data dragged it down from $1.1271 on Friday.

The dollar index, which tracks it against a basket of six currencies, eased fractionally to 95.265.

Adding to the jittery mood on Monday was news that Democratic candidate Hillary Clinton fell ill at a Sept. 11 memorial ceremony and had been diagnosed with pneumonia.

Markets have generally assumed Clinton would win the presidency and have not truly considered the implications, both economic and for national security, should Donald Trump prevail.

Geopolitical concerns had already been inflamed by North Korea’s fifth and biggest nuclear test, ratcheting up a threat that its rivals and the United Nations have been powerless to contain.

North Korea has completed preparations for another nuclear test, South Korea’s Yonhap News Agency reported on Monday, citing South Korean government sources.

In commodities, oil prices extended Friday’s 4 percent fall in Asia after reports showed increasing oil drilling activity in the United States, indicating that producers can operate profitably around current levels and bring on new supply.

Brent crude was off 68 cents, or about 1.4%, at $47.33 a barrel, while U.S. crude lost 75 cents to $45.13.


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European shares slide, poised for biggest loss since June

Shares in the United States and Asian sunk as bond yields rose around the world. Investors fretted over a potential rate rise by the U.S. Federal Reserve next week, as they also questioned whether central bank policy had reached the limits of its effectiveness.

The STOXX 600 was down 1.8%, set for its biggest fall since late June. The growth-sensitive basic resources sector slumped 3.5%, the worst performer on the day, while bank stocks fell 1.9% .

German-listed E.ON was the top faller, down 13% after it spun off its Uniper division, while Linde dropped 7.4% after its Praxair merger fell apart. 



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Asian shares look set to skid on Monday

Asian shares looked set to skid on Monday with investors rattled by rising bond yields and talk the Federal Reserve might be serious about lifting U.S. interest rates as early as next week.

Nikkei futures pointed toward a starting loss of at least 2 percent, while EMini futures for the S&P 500 were off 0.2 percent after the index suffered its sharpest daily loss since the Brexit vote on Friday.

Reports the Bank of Japan was considering ways to steepen the Japanese yield curve, along with speculation that central banks more generally were running short on fresh stimulus measures, slugged sovereign debt and risk appetite globally.

Some Fed members have been trying to convince markets that the September meeting would be "live" for a hike, even though futures  only imply a one-in-four chance of a move.

No less than three Fed speakers are on the docket for Monday including board member and noted dove Lael Brainard. Any hint of hawkishness would likely further pressure bonds and equities.

"The debate on low nominal inflation and low neutral rates versus robust labor markets and elevated asset values continues to rage on in the U.S.," wrote analysts at ANZ.

"Given the split in views expressed so far, it seems the centralists will have the final say for September. Given what has been said so far it seems like it could go either way so brace for a little more volatility."

The CBOE Volatility index closed at its highest level since late June on Friday. The Dow shed 2.13 percent on Friday, while the S&P 500 lost 2.45 percent and the Nasdaq 2.54 percent.

Super-low yields have made returns on equities seem relatively more attractive in comparison, so any sustained climb in yields would likely weigh on stock valuations.

The yield on benchmark German debt, for instance, had turned positive for the first time since July 22 and ended at 0.02 percent, its highest since June 23. Yields on U.S. 10-year and 30-year paper hit 11-week peaks.

SEEKING SAFETY

In the forex market, the sudden bout of risk aversion benefited safe havens such as the yen while hitting carry trades in higher yielding currencies including the Australian dollar.

The Aussie has lost 1.5 percent against the yen in two sessions to stand at 77.10, while the Japanese currency was firm on the U.S. dollar at 101.31.

The euro was sidelined on the dollar at $1.1233 after weak German trade data dragged it down from $1.1271 on Friday. The dollar index, which tracks it against a basket of six currencies, eased 0.1 percent to 95.279.

Adding to the jittery mood on Monday was news Democratic candidate Hillary Clinton fell ill at a Sept. 11 memorial ceremony and had been diagnosed with pneumonia.

Markets have generally assumed Clinton would win the presidency and have not truly considered the implications, both economic and for national security, should Donald Trump win.

Geopolitical concerns had already been inflamed by North Korea's fifth and biggest nuclear test, ratcheting up a threat that its rivals and the United Nations have been powerless to contain.

North Korea has completed preparations for another nuclear test, South Korea's Yonhap News Agency reported on Monday, citing South Korean government sources.

In commodities, oil prices extended Friday's 4 percent falling early trade. Brent crude was off 45 cents at $47.56 a barrel, while U.S. crude lost 56 cents to $45.32.


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Malaysia's Axiata’s not in talks with Singapore's M1 to raise stake

Axiata Group Bhd is not in any negotiation to raise the regional telecommunication firm’s stake in Singapore’s M1 Ltd.

This was confirmed to StarBiz by Axiata president and group chief executive officer Tan Sri Jamaludin Ibrahim (pic). Axiata has a 28.57% stake in M1 which provides both fixed and mobile telecommunication services in the island republic.

“I wish to be clear that Axiata is not currently in any negotiations with M1 to increase our stake further from the existing 28.57% held.

“However, being one of the leading regional operators and a long-term investor in Asean and South Asia, we are always looking to consider any worthwhile opportunities in the region.



“This is subject to the right timing and pricing, among other important criteria and whether they meet our strategic merger and acquisition (M&A) objectives,” Jamaludin said.

Earlier reports had indicated that Axiata was keen on increasing its stake in M1 as part of expansion plans in the region.

According to AmInvestment Bank, the M1 development followed as Keppel Corp was considering selling its 19.2% equity stake in M1 as part of a strategy to dispose of non-core operations.

Axiata has held a stake since 2005, with M1 having delivered consistently good returns.

Apart from Singapore, Axiata has controlling stakes in local telecommunication firms in Indonesia, Sri Lanka, Bangladesh and Cambodia.

Meanwhile, Jamaludin reiterated the company’s plans in expanding its telecommunication tower infrastructure business through edotco Group Sdn Bhd via M&As.

“We are keen to consider inorganic expansions outside our existing footprint.

“The target market of Asean and South Asia region remains, which is in line with our continuous effort to further drive long-term growth in these areas,” he said.

edotco, the world’s 12th largest independent tower company, manages 16,800 towers with a portfolio spanning across Malaysia, Bangladesh, Cambodia, Sri Lanka and Myanmar.

As for its mobile business, Axiata’s focus has been on in-country mobile consolidation by taking controlling stakes in network operators across Asean and South Asia.

In-country consolidations allow Axiata to solidify its position, unlock market profitability and synergy opportunities as well as ensure sustainable long-term growth.

The company began strengthening existing operations and market position through consolidation exercises in 2013, in Sri Lanka between Dialog and Suntel, followed by Sky Television and Radio, and later in Cambodia with Smart and Hello. In 2014, XL and Axis in Indonesia were also consolidated.

Axiata has also since ventured into the highly competitive Bangladesh market with Robi and Airtel.

The company had received approval for the proposed merger of Robi Axiata Ltd and Airtel Bangladesh Ltd from the Bangladesh High Court on Aug 31.

“The proposed merger is expected to be completed by fourth quarter of 2016.

“Both parties are currently working towards this,” said Jamaludin.

The completion of the proposed merger will be subject to the fulfilment of specific conditions mandated by the High Court and completion of conditions precedent in the merger agreement.

Some of the conditions entail payments of a proposed merger fee amounting to BDT100 crore (US$12.8mil), as well as the difference between spectrum price of BDT507 crore (US$65mil).

Besides that, in the event that Robi returns any spectrum, the value of the returned spectrum has been fixed at Taka 10 crore (US$1.3mil) per MHz per year.

The combined entity post-merger will operate as Robi, serving approximately 40 million customers from the current estimated 27 million.

“The proposed merger combines the strength of both operations and will deliver the widest mobile network coverage across Bangladesh, strengthening its position in the mobile internet segment as well as consolidating its position as the second largest operator in the country,” said Jamaludin.

Axiata completed the acquisition of Nepal’s Ncell Pte Ltd in April this year, marking the company’s entry into Nepal.

Ncell was acquired for US$1.37bil (RM5.6bil) from Swedish telco giant TeliaSonera (now known as Telia Company).

However, Ncell had been directed by the Large Tax Payers Office of Nepal to calculate and make a 15% deposit of the gains of TeliaSonera from the share sale of offshore company Reynolds Holdings Ltd by Telia Norway, a subsidiary of Telia Company of Sweden.

The advance tax of 9.96 billion Nepalese rupees (RM378.75mil) deposited by Ncell was in relation to the capital gains tax which was supposed to be paid to the seller Telia Norway.

Jamaludin said Axiata and Telia Company were in the midst of discussing the matter with Nepal for an amicable solution for all parties involved.

For the second quarter of financial year 2016, Ncell’s contribution to Axiata’s revenue, earnings before interest, taxes, depreciation and amortisation and normalised profit after tax and minority interests were 9.1%, 15% and 32.1% respectively.

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More provisions for R&R loans, may dampen bank earnings further

More banks are setting aside provisions to reschedule and restructure (R&R) loans and this may further dampen earnings and impact asset quality this year as the sector braces for a challenging year.

Banking sources told StarBiz that since the guidelines on restructured and rescheduled loans came into force in April last year, not many banks have proactively set provisions for R&R loans but now will do so amid the tough economic and investment climate.

R&R facility refers to a modification to the original repayment terms and conditions of the loan following an increase in the credit risk of a customer.

The move to provide for R&R loans was made to prevent future loan default and rising non-performing loans. Among the banks, the country’s largest lender Malayan Banking Bhd (Maybank) has been proactive in rescheduling and restructuring some of its business and corporate banking borrowers’ facilities.



Other banks have also stepped up efforts in providing for R&R loans.

For the first half year ended June 30, Maybank’s profit was impacted due to provisions for loan impairments as it undertook proactive restructuring and rescheduling of clients’ loans to better match their repayment abilities with projected cash flows. The bank’s net profit fell 21.3% to RM2.59bil due to higher provisions for loan and securities impairments amounting to RM2.06bil.

Loans that have been restructured and rescheduled will be classified as impaired, in accordance with the Classification and Impairment Provisions for Loans/Financing guideline by Bank Negara that took effect from April 1, 2015.

This means that although R&R loans may be “performing” in nature, these loans will need to be included in a bank’s “impaired” category. Maybank has been proactively managing its asset quality by restructuring and rescheduling loans this year, which has contributed to the increase in allowances of loan losses of RM1.85bil for the first half compared with RM548.9mil a year ago.

The guidelines on R&R loans requires banks to comply with two additional guidelines for the classification of impaired loans. First, the classification of R&R loans as impaired loans, and second, the reclassification of R&R loans from impaired to non-impaired only after a consistent repayment has been observed for at least six months.

Under the guidelines, new R&R loans effective April 1 of last year in the Central Credit Reference Information System (CCRIS) would be classified as impaired. Banks use CCRIS as part of their assessment of borrowers’ creditworthiness.

UOB Kay Hian banking analyst Keith Wee said only Maybank had been relatively proactive in initiating the R&R process on its oil and gas (O&G), real estate and other lumpy corporate loans under the bank’s watch list.

Other corporate-centric banks such as RHB Bank, AMMB, CIMB and Affin that have relatively sizeable O&G portfolios have not reported any significant spikes in O&G-related impairments, he added.

In a research note, Wee noted: “We believe that this could be due to the fact that these banks may not have pro-actively initiated R&R process on their O&G loans. Given the current environment, we believe that it is inevitable that they would have to start ramping up efforts to approach these customers for a potential R&R to prevent an outright loan default scenario in the second half of this year. This is where we could start to see a pick-up in lumpy impairments from these banks and consequently further increase in overall aggregate provisions.’’

Earnings for the banking industry in the second quarter registered a 10.1% year-on-year contraction as rising impairments was the key drag on earnings.

Meanwhile, Maybank IB Research said in a report that cumulative absolute gross impaired loans (GIL) rose 18% year-on-year (y-o-y) end-June. This was driven almost single-handedly by a 56% jump in Maybank’s GIL due to higher incidence of R&R loans emanating from O&G, shipping and steel related sectors.

CIMB’s GIL ticked up 2% y-o-y due mainly to a rise in in impaired loans at its Thai operations. RHB saw lumpy corporate GILs in the property development and steel related sectors, while Aliance Financial Group’s GIL rose 20% y-o-y due to impairment of several SME loans, it noted.





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Century Logistics MD to stay on, no plans to sell stake to Koreans

Century Logistics Holdings Bhd managing director Steven Teow Choo Hing has no plans to sell out of the company despite the emergence of South Korea-based CJ Korea Express Asia Pte Ltd as the single-largest shareholder in the Port Klang-based integrated logistics services firm.

He plans to remain at the helm of Century Logistics, in which he has an 11.1% stake, making him the second-largest shareholder in the company.

“I am not looking to sell out,”.

“I will stay on will continue to lead the company and champion the post-merger exercise,” he added.



Teow said it was also the intention of CJ Korea that he remained as the managing director of Century Logistics.

CJ Korea will be acquiring a 31.44% stake, or 120.54 million shares, in Century Logistics in a deal valued at RM174.78mil.

This followed a conditional sale and purchase agreement that CJ Korea signed last Thursday with Century Logistics’ majority shareholders – namely the company’s founder Datuk Richard Phua Sin Mo and his wife Datin Lee Lay Hun and daughter Pamela Phua Jo Lyn as well as Chai Mee Young (wife of executive director Teow Choo Chuan) – for the disposal of the substantial stake at RM1.45 per share.

The deal represented a 39.4% premium over the closing price of Century Logistics’ shares at RM1.04 sen on Wednesday.

The counter, which has been rallying since early this month, closed at 97 sen on Friday, after gaining half-sen.

CJ Korea, a unit of South Korea’s biggest public-listed logistics provider CJ Korea Express Corp, said the group viewed Century Logistics as the perfect fit for it to achieve its goal of becoming a dominant player in Malaysia.

Century Logistics, on the hand, would be able to leverage on CJ Korea’s strengths, including its technology systems and solutions.

“We can leverage on Century Logistics’ strong local customer base. We are now operating a parcel delivery service but it is still in its infancy. As we see e-commerce growing, we would like to focus on parcel delivery,” CJ Korea’s vice-president for the strategy planning division, Ahn Jaeho, told the press earlier.

“We would like to strengthen and expand the parcel delivery service to become a major player in Malaysia,” he added.

In a statement, CJ Korea said it would introduce its advanced technology, engineering, system and solution and know-how to Century Logistics to enable it to expand into the e-commerce and parcel delivery segments.

The integration of CJ Korea’s Asean network with Century Logistics’ network in Malaysia would complete the first step in its aspiration to become a regional logistics leader.

CJ Korea planned to leverage on the facilities and infrastructure of Century Logistics in its core regions such as the Klang Valley and Johor, as well as the freight forwarding activities in the main ports to remain competitive.

“CJ Korea and Century Logistics shall integrate their logistics and administrative activities, resulting in a larger network and more cost-efficient operation.

“CJ Korea and Century Logistics are expected to benefit through the sharing of key logistics hubs and networks, cross-selling and new business opportunities,” it said.





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Asian stocks plunge following Wall Street’s Friday rout

Asian shares started the week notably weaker as investor anticipation continues to build regarding a pause in global central banks’ easing policies, which have helped prop up asset prices.

Emerging markets in Asia are particularly vulnerable to a rate increase in the U.S. as better returns there could prompt a flight of capital from less-developed locales. But some say strong growth and the potential for earnings to pick up faster in Asia will temper any sharp withdrawals.

After the biggest stock declines in the U.S. on Friday since the initial post-Brexit drops and following a summer devoid of volatility in equities trading there, Australia’s S&P/ASX 200 XJO, -2.17% recently traded nearly 2% lower Monday morning after its biggest decline in five weeks on Friday while the Nikkei Stock Average NIK, -1.75% was down 1.2% and Korea’s Kospi SEU, -2.09% dropped 1.5%.

Hong Kong’s Hang Seng index HSI, -2.76% opened 2.4% lower after last week’s 3.6% jump and the Shanghai Composite SHCOMP, -2.38% started down 1.6%.

“Friday’s market adjustment to the possibility of higher rates has continued in early Asian trade, with a sharp jump in Australian bond yields and a weaker opening” in Asian oil trading, said CMC Markets chief market analyst Ric Spooner.

Commodity names were outperforming to the downside in Australia, with big miners BHP Billiton Ltd. BHP, -4.02% and Rio Tinto Ltd. RIO, -2.49% off 3.2% and 2.1%, respectively.

One bright spot this morning were Japanese life insurers, gaining on expectations that their investments abroad would yield higher returns. Dai-ichi Life Insurance Co. 8750, +2.43% rose 1.5% and T&D Holdings Inc. 8795, +2.27% gained 1%.

Monday’s selloff comes as investors in the U.S. on Friday in particular sold shares of high dividend-payers in utilities and telecom — which have been favorites as yield plays given the low-rate environment. Federal Reserve Bank of Boston President Eric Rosengren on Friday said “a reasonable case can be made” for tightening interest rates to avoid overheating the economy.

Fed Governor Lael Brainard is scheduled to speak on Monday, a day ahead of the blackout period on public comment which begins before next week’s FOMC meeting.

In the bond market, yields on 10-year Australian benchmark debt hit 12-week highs today as investors bet on a higher rate environment. Yields rise as prices fall. Yields also rose on long-term Japan government bonds amid lingering speculation that the Bank of Japan may begin pulling back on its aggressive easing policies.



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Dollar steadies as investors await speech from Fed’s Brainard

The dollar was nearly flat against the yen and euro during Asia trade on Monday, with the U.S. currency lacking clear direction ahead of a speech by a key member of the U.S. Federal Reserve.

The U.S. dollar USDJPY, -0.17% changed hands at ¥102.52, compared with ¥102.55 late Friday in New York. The euro EURUSD, +0.1068% strengthened slightly to $1.1242 midday from $1.1236.

The WSJ Dollar Index BUXX, -0.01% a measure of the dollar against a basket of major currencies, was down 0.03% at 86.48.

“What we are seeing is a tug-of-war” between the dollar buying on speculation about U.S. tightening and yen buying on risk aversion, said Yuzo Sakai, manager of FX business promotion at Tokyo Forex & Ueda Harlow.

More specifically, Sakai said investors are buying the U.S. currency following recent hawkish comments from Fed officials. Eric Rosengren, the president of the Federal Reserve Bank of Boston, said Friday that “a reasonable case can be made” for tightening interest rates to avoid overheating the economy.

Meanwhile, a risk aversion mood is prevailing after stocks in the U.S. dropped more than 2% Friday and due to tension over North Korea’s fifth nuclear test. As a result, investors have been buying yen.

On Monday, stocks slid in Tokyo with the benchmark Nikkei Stock Average NIK, -1.76% falling nearly 2% by late afternoon, which also spurred yen buying.

Investors are now waiting for by Fed governor Lael Brainard’s speech due later Monday which is scheduled to come just a day before the Fed goes into blackout mode before the Federal Open Market Committee meeting of Sept. 20-21, said Sakai and other market watchers in Tokyo.

“There are quite a lot of investors who expect the Fed will likely give a message to the market,” via Brainard, who is known as a proponent of keeping rates low, said Takuya Kanda, senior researcher at Gaiteme.com Research Institute in a morning note.

“I do expect only a small chance that the Fed will go ahead with a rate increase this time,” said Kanda, pointing to recent weak economic indicators. Still, investors are mindful of the possibility of a September rate increase, should the Fed official emit any hawkishness. That said, any resulting slide in U.S. stocks would amplify traders’ sense of risk, triggering yen buying, he said.




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