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Asian Stocks Slip -- 2nd Update

28 Feb 2018 5:45 am
By Kenan Machado 

Asia-Pacific equities were down Wednesday after an afternoon selloff in the U.S., as a roller-coaster February closes.

After big gains in much of the world in January, February began with a long-awaited slide--widely attributed to rising bond yields and inflation anticipation--and though a rebound followed, the month will go down as the worst in at least a year for a number of stock benchmarks.

Given the rebound, "the urge to take money off the table is quite high," said Hao Hong, head of research for Bocom Securities in Hong Kong.

Selling was heaviest in Hong Kong and China, as mainland large caps continued their recent weakness.

The Shanghai Composite was off 0.7%--getting back half of its 1.3% morning-session drop--while Hong Kong's Hang Seng slid 1.7% and a measure of mainland companies also listed in the city slumped 2.6%. Those mainland companies are down 6% to 9% for February, heading for their biggest monthly declines since January 2016, when worries about China's economic growth fueled a global stock slide.

The decline in Tokyo shares--which began modestly, as elsewhere in the region--accelerated after the Bank of Japan cut purchases of long-term government bonds in its latest market operation by 13%, continuing its gradual retreat from its heavy buying of recent years.

The cutback was a "ridiculous" excuse for a selling shares, said Takashi Hiroki, chief strategist at Monex Securities, calling it a "tiny catalyst."

"Everyone knows that every now and then the BOJ does some stealth tapering," he said, "so I don't know why the market is reacting."

The Nikkei was recently down as the central bank news lifted the yen off session lows. The dollar eased to Yen107.20 from Yen107.50.

"The timing is not good," said Masashi Murata, currency strategist at Brown Brothers Harriman, about the BOJ's latest bond-buying tweak, adding that it indicates the central bank may not be bothered by the currency impact. The yen has been strengthening to start 2018.

In the U.S., fresh concerns that the Federal Reserve will pick up the pace of interest-rate increases was seen as stoking Tuesday afternoon's stock weakness, as well as dollar gains and bond-yield increases.

The cause of the concern: New Fed chief Jerome Powell's expression of confidence in the U.S. economy.

"My personal outlook for the economy has strengthened since December," he told the House Financial Services Committee. He pointed to data that increases his confidence that inflation is moving toward the central bank's 2% target.

Investors responded by boosting bond yields and adjusting their rate-increase expectations. According to CME data, Fed-fund futures now show a 27% chance of four increases in the key rate this year, up from 21% a day earlier, and a 39% chance of three increases, up from 37%. Meanwhile, the probability of just two increases dropped to 21% from 27%.

Before Mr. Powell's testimony, investors had assumed he would stop short of significantly altering the perceived path of near-term monetary policy, said RBC Capital Markets' chief U.S. economist Tom Porcelli. But he "certainly offered something that was pretty close to an endorsement of at least an additional hike in 2018."

As S&P 500 futures were recently down 0.2%, oil futures in Asia extended Tuesday's declines from the stronger dollar. The global Brent benchmark was recently off 0.4%.

Suryatapa Bhattacharya contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

February 28, 2018 00:45 ET (05:45 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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