Asian stocks sagged and the dollar stood tall on Wednesday on growing prospects the Federal Reserve was on track to raise interest rates later this year and concerns that financial woes could engulf Spain in addition to Greece.
Taking a lead from Wall Street’s slide, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 per cent. Shares in Australia dropped 0.8 per cent, South Korea fell 1.6 per cent, Hong Kong eased 0.6 per cent, while Tokyo's Nikkei dipped 0.1 per cent.
The Dow and S&P both lost 1 per cent on Tuesday on Greek debt concerns and after upbeat US economic data added fuel to expectations that the Fed will raise rates sooner rather than later.
Higher interest rates for the world’s largest economy could lessen the allure of equities, not only in the United States but also in other countries.
Indicators on Tuesday had showed US business spending plans increased, consumer confidence improved and house prices extended gains. The data supported the stance taken by Federal Reserve Chair Janet Yellen, who had said on Friday that the central bank could hike rates this year if the economy keeps improving.
US debt yields
The dollar was on a bullish footing, hoisted higher as US debt yields rose on the strong economic indicators. The greenback received a further boost as the euro slid not only on persisting Greek woes but signs that the Spanish public was also tiring of austerity.
Greece debt woes
With Athens already facing the possibility of missing its June 5 debt repayment deadline to the International Monetary Fund, the mood in Europe became even more edgy as voters in Spain punished the ruling Popular Party in local elections after years of austerity policies.
“Greek tensions are spreading to other European markets, as political instability has escalated, notably in Spain and Poland,’’ strategists at Barclays wrote.
‘Spanish equities fell and bond yields rose as the regional and municipal elections delivered a highly fragmented verdict,’’ they said.
Euro, dollar
The euro was steady at $1.0876, staying close to a one-month low of $1.0864 struck overnight. The dollar was little changed at 123.06 yen, within reach of an eight-year peak of 123.33 yen hit overnight.
Commodities felt the impact of a stronger dollar, with crude oil prices tumbling nearly 3 per cent overnight. US crude managed to edge up 0.3 per cent to $58.35 a barrel on bargain hunting after the slide, while Brent gained 0.2 per cent to $63.85 a barrel.