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Asian shares rebounded from three-month lows on Wednesday, though the spectre of higher borrowing costs in the United States and concerns about the apparent lack of progress in talks between Greece and its creditors sapped confidence.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8 per cent after hitting a fresh three-month low. At one point, it was down 9 per cent from the seven-year peak hit in late April.
Japan’s Nikkei eased 0.1 percent to three-week lows, while European shares were expected to dip further.
Spreadbetters expect Germany’s DAX, Britain’s FTSE and France’s CAC40 to fall 0.1-0.2 per cent, a day after a pan-European stock index fell to a four-month low.
“Market players are reducing risk positions on caution about higher volatility in interest rate markets,’’ said Kyoya Okazawa, head of global equity and commodities at BNP Paribas in Tokyo.
Fed rate hike
Share markets around the world, particularly some emerging markets that have relied on foreign capital, have been hit on growing expectations that the US Federal Reserve will start to raise interest rates before the year is out.
US bond prices slipped as they were also hit by this week’s flood of supply, sending the 10-year US benchmark bond yield to an eight-month high of 2.458 per cent and last stood at 2.448 per cent.
Strong US data, including Friday’s report showing solid increase in employment, and recent comments from top Fed officials suggesting a rate hike is likely later this year have driven up bond yields in the past several days.
“In the big scheme of things, we could be witnessing the end of ‘Goldilocks’ markets, where both bonds and shares prices have risen (on the back of easy monetary policy),’’ said Shuji Shirota, head of macroeconomy strategy at HSBC in Tokyo.
Greece debt concerns
Concerns about Greece also added to the nervousness.
A new reform proposal submitted by Athens earlier this week failed to fully satisfy creditors, heightening concerns about whether Greece can agree on a deal to unlock new funding to ward off a debt default.
“Failure to agree this week would likely make it difficult to have a smooth resolution before the end of June, partly because another extension of the programme would require the approval of some national parliaments,’’ Barclays analysts said in report.
Yen vs dollar
In currency markets, the yen surged against the dollar and other currencies after Bank of Japan Governor Haruhiko Kuroda said the yen’s effective exchange rate is unlikely to weaken further.
The dollar fell to as low as 122.77 yen from the day’s high of 124.63 and last stood at 123.03.
“I would consider his comments today as his first attempt for verbal intervention against a weaker yen. The government has been making cautious comments about a weak yen since late May. But Kuroda’s comments seems to be aimed at delivering their intention in a clearer way,’’ said Koji Fukaya, president of FPG Securities.
US dollar was largely steady against other currencies. The euro traded little changed at $1.1296.
MSCI shuns index inclusion
Elsewhere, mainland Chinese shares, currently dominated by retail Chinese investors, suffered a small setback after US index provider MSCI Inc had said on Tuesday it will hold off including China-listed shares in its widely tracked indexes.
But MSCI also said it expects China-listed shares to be incorporated once outstanding market accessibility issues are resolved - a move that could inject an estimated $400 billion of funds from asset managers to mainland shares.
Shanghai shares fell 0.5 per cent, though they are still up more than 35 per cent so far in this quarter, having rallied strongly on hopes of stimulus from Chinese government.
Crude oil
Oil futures extended gains, with US crude and gasoline inventories set to drop and as the Energy Information Administration (EIA) raised its 2015 oil demand growth forecast.
Brent crude futures rose 1 per cent or 68 cents, to $65.55 a barrel. US crude climbed 1.6 per cent or 92 cents, to $61.06 a barrel.
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