Markets Pause Ahead of U.K. Election, ECB Meeting

By Ese Erheriene Features Dow Jones Newswires

Asian equity markets lacked direction Wednesday, as investors stuck to the sidelines ahead of bellwether global events this week.

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The planned public testimony by former U.S. Federal Bureau of Investigation Director James Comey on Thursday continued to stoke concerns about U.S. political instability. Additionally, investors showed their nerves ahead of a European Central Bank policy meeting and the U.K. general election, both scheduled for Thursday.

The trio of risk events have been "sufficient to keep markets on the defensive," OCBC Bank said in a note Wednesday. "For today, Asian bourses may be content to tread water."

The Nikkei Stock Average was up slightly in midday trade, having edged back from 20000 the previous session. Meanwhile, Australia's S&P/ASX 200 and Korea's Kospi were about flat.

Japanese stocks were earlier dragged down by interest-rate-sensitive insurers. MS&AD Insurance Group Holdings was down 1.6%, while T&D Holdings was 0.3% lower.

In Australia, stocks were under pressure amid slowing growth in the country's economy, with gross domestic product expanding just 0.3% in the three months through March from the fourth quarter of 2016, according to data released Wednesday.

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Still, the Australian dollar was higher against the U.S. dollar, rising 0.4%, as some traders had expected the GDP to miss the 0.3% consensus growth number.

"I remain absolutely of the view...the world economy is turning, the outlook around the world is improving," Scott Morrison, Australia's treasurer, said. "And that means Australia is well positioned in the positions we've taken to grow into that growth."

Bucking the regional trend, stocks in China were higher after some listed companies sent notices to employees that markets saw as offering a short-term boost to share prices.

Since Tuesday afternoon, 10 companies, including Qingdao Kingking Applied Chemistry, issued statements to the effect that the company's controlling shareholders were encouraging employees to buy shares and would compensate them should losses occur.

The Shanghai Composite Index was up 0.9% at the midday break, while the Shenzhen Composite Index had gained 1.6%.

In Hong Kong, the Hang Seng Index gave up small gains, having earlier set a fresh 23-month high, to trade flat as it bowed to cautious regional sentiment.

Still, Hong Kong-listed smartphone audio components supplier AAC Technologies held on to gains, surging 17% on its trading resumption. The company's shares were battered after short seller Gotham City in May accused it of dubious accounting practices, allegations the company has repeatedly denied.

Events took an interesting turn on Tuesday, when another short seller, Anonymous Analytics, backed the Apple supplier with a report titled "Hong Kong Deserves A Better Hero." It criticized Gotham City's earlier report on AAC as "grossly misleading." The Anonymous report came just hours before AAC hosted a news briefing to further rebut Gotham's allegations.

In currency markets, the Korean won came under pressure against the U.S. dollar, following a stock market holiday Tuesday and amid Korean investors catching up with the risk-aversion sentiment. The dollar was last up 0.5% at 1122.30 won.

Meanwhile, the yield on the benchmark 10-year U.S. government note closed overnight at the lowest level since Nov. 10, while London spot gold was up 1% so far this week.

"The ongoing rally in bonds and gold plus the weak dollar is interesting, " said Ric Spooner, chief market analyst at CMC Markets. "It suggests caution ahead of this week's major risk events."

Elsewhere, crude oil faced selling pressure in Asia, after posting gains in the U.S. session following another upward revision of production estimates for the year by the U.S. Energy Information Administration. The EIA now expects U.S. crude output rise to 9.33 million barrels this year as oil digging operations expand.

July WTI was recently down 11 cents at $48.08 a barrel, while Brent for August delivery was 8 cents lower at $50.04 a barrel.

Joanne Chiu, Rob Taylor, Kosaku Narioka, Kenan Machado and Jenny Hsu contributed to this article.

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

Investors regained some moderate risk appetite Wednesday, ahead of key political events later in the week.

The Stoxx Europe 600 was mostly unchanged in early European trade, while futures pointed to a flat opening for the S&P 500. Still, some of the riskier sectors rose, with eurozone banks up 0.9%.

Money managers have flocked into haven assets this week, like government bonds and gold, waiting for a series of scheduled events that have the potential to create big moves in global markets.

On Thursday, the European Central Bank will provide further clues on how long ultraloose monetary policy will remain in place, and testimony by former U.S. Federal Bureau of Investigation Director James Comey will test the stability of Donald Trump's presidency. Early results for the U.K. general election will start coming in Thursday night, with the latest polls suggesting a very tight race.

The trio of risk events have been "sufficient to keep markets on the defensive," OCBC Bank said in a note Wednesday.

But there were signs of stronger confidence Wednesday. Gold, which is one of the market's preferred havens, gave up some of this week's gains and was down 0.2%. Meanwhile, the yield on 10-year U.S. government debt was up slightly, after closing overnight at the lowest level since Nov. 10.

"It's less about the rallying into safety havens and more about toning down interest rate expectations," said Zhiwei Ren, fund manager at Penn Mutual Asset Management. "I don't think inflation can surprise on the upside at this point, and that means the Fed can take its time to raise rates."

The dollar bounced back and was up 0.2% against the euro.

In Asia, the Japanese Nikkei Stock Average and Australia's S&P/ASX 200 both closed flat, while Korea's Kospi lost 0.4%. The Shanghai Composite Index was up 1.2%.

During the second half of last year, global markets rallied because they expected higher growth and inflation. While stocks have remained strong, bond yields have returned most of the gains, a sign that recent gains in inflation are now seen as the result of higher oil prices rather than stronger consumer demand. This means central banks, including the ECB, are likely to react more cautiously than previously believed, analysts said.

"Tomorrow might bring a little disappointment for some," said Antje Praefcke, analyst at German lender Commerzbank AG, who nonetheless believes ECB President Mario Draghi "would have to be very outspoken, vehemently rejecting a change of the forward guidance for the market to lower the market's rate expectations and for the euro's upside momentum to be slowed."

Ese Erheriene contributed to this article.

Write to Jon Sindreu at jon.sindreu@wsj.com

(END) Dow Jones Newswires

June 07, 2017 04:11 ET (08:11 GMT)