Financial Stocks Decline Globally Amid Worries on Interest Rates

By Ese Erheriene Features Dow Jones Newswires

Stocks in Asia extended losses, which followed U.S. equity market declines after they had their first chance to price in North Korea's Sunday nuclear test.

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After Monday's holiday, major U.S. indexes logged nearly 1% declines across the board overnight, led by a sharp drop in financial stocks on fresh interest-rate concerns, casting a cloud over Asian equities.

In Hong Kong, the Hang Seng Index--among the world's best-performing stock benchmarks this year--finished morning trading down 1% to log region-worst declines amid a 1.4% drop in index heavyweight HSBC and declines of at least 1% in Chinese-based banks. However, many markets in the region were seeing declines of less than 0.4% by midday.

Lenders were notably hit by dovish comments from Federal Reserve Governor Lael Brainard, who said the U.S. central bank should be cautious about raising short-term interest rates further until policy makers are confident of overcoming the " persistent failure" to reach 2% inflation.

She "started the ball rolling" regarding the selling, said Chris Weston, chief market strategist at IG Group. The comments came "at a sensitive time for markets," he noted, adding that Donald Trump's Tuesday-morning tweet about selling more military equipment to Japan and South Korea added to the risk-off mood in the U.S.

The Nikkei Stock Average was down 0.3% in early afternoon trading. At the same time, the yen rebounded anew, including hitting a series of one-week highs against the dollar, which weighed on export stocks. The greenback was recently around Y108.65 after moving back toward 2017's low in morning trading.

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Financials were weak across Asia following the U.S. selloff, which also happened as 10-year Treasury yields hit 2017 lows at just above 2%.

With Category 5 Hurricane Irma poised to hit Florida as soon as Sunday--which will be about two weeks after Hurricane Harvey hit Texas--Ms. Brainard's comments about still-soft inflation and how quickly future rate increases may come was a sour note for banks globally, whose margins have been under pressure much of the past decade in this low-rate environment.

Depending on where Irma may make landfall and the resultant damage, economic impacts could also further depress the prospects of a December rate increase, said Margaret Yang, a market analyst at CMC Markets. The futures market is only pricing in a 37% chance of any further interest-rate increases this year, according to CME data.

Australia's "big four" banks were down about 1% and Japan's Topix bank subindex slid 1.4%.

Meanwhile, oil futures were down modestly in Asia after 2% to 3% gains overnight. Brent was recently off 0.4% at $53.16 a barrel. And gold prices were little changed, remaining at 11-month highs.

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

(END) Dow Jones Newswires

September 06, 2017 01:11 ET (05:11 GMT)