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Currency Gains Pressure Japan, Australia Stocks -- Update

12 Jul 2017 4:38 am
By Ese Erheriene 

Stock markets in Asia largely took a breather Wednesday, tracking mixed signals from U.S. markets, with Japan and Australia the regional laggards as they weathered currency headwinds.

The market action came as Donald Trump's eldest son released correspondence on Tuesday that showed communication with Russia's prosecutor general, fueling concerns that Russia might have meddled in the 2016 U.S. election.

"The main theme overnight was the market's knee-jerk reaction to the emails," said Commerzbank. Wall Street suffered sizable intraday declines Tuesday before ending little changed.

Meanwhile, the WSJ Dollar Index declined a further 0.2% in Asia on Wednesday after softening 0.2% the previous day.

With the yen rebounding from two-month lows against the U.S. dollar, the Nikkei was recently down 0.4% after rising 1.3% the previous two days. The dollar slipped below Yen113.50 after touching as high as Yen114.49 overnight.

"The market is looking for any sign of risk events that can trigger the selloff that they are more positioned for," said Tareck Horchani, head of Asia-Pacific sales trading at Saxo Capital Markets.

The Australian dollar was also firmer, pressuring equities there. The S&P/ASX 200 fell 0.7% as the country's big four banks, which are heavily weighted in the index, declined by an average 1.3%.

But Hong Kong's Hang Seng Index rose an additional 0.8% amid a 1.5% climb for index heavyweight Tencent and gains in China-based banks. In China, the CSI 300 Financials subindex, which mainly consists of big caps, jumped 1.3% after Tuesday's gains.

The move comes as the Shanghai Composite Index opened higher on Wednesday for the first time in nine sessions; it was recently down 0.2% while the Shenzhen Composite Index dropped a further 0.8%.

Beyond the White House, investors will be looking to Federal Reserve Chairwoman Janet Yellen for clues about whether a third rate increase in 2017 might come before the central bank is expected to start reducing its $4.5 trillion balance sheet. Ms. Yellen will kick off two days of semiannual testimony on Capitol Hill on later in the global day.

"This might mean announcing something at the July meeting," said Rob Carnell, Asia economist at ING. Although to play it safe, the Fed may opt for "substituting unwinding for a September rate hike and pushing the next hike back to later in the year, when the inflation picture becomes clearer."

Among the bright spots, oil prices rose some 1.5% Wednesday after logging a 1.4% increase overnight. The gain in Asian trading was fueled by the American Petroleum Institute saying that U.S. oil supplies fell 8.1 million barrels last week. The decline is nearly triple what analysts expect government data to show later Wednesday.

Energy stocks across the region received a shot in the arm, with the S&P/ASX 200 energy subindex edging up despite Australia's broader stock declines. Major Chinese oil companies Cnooc and Sinopec climbed about 1.0% each in Hong Kong.

Regional technology stocks also extended Tuesday's gains. Beyond Tencent, Largan Precision rose 2.0% in Taiwan and Samsung added 1.3%, each again hitting new highs. However, Korea's Kospi index was slightly below its record-closing high reached Tuesday.

John Wu contributed to this article.

Write to Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

July 12, 2017 00:38 ET (04:38 GMT)

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