Asian shares sputtered on Thursday as U.S. Federal Reserve Chair Janet Yellen’s tone of guarded optimism led to an indecisive finish for Wall Street and further weakness for the dollar.
While European banks found a moment of stability, a renewed rush to the safety of longer-term U.S. Treasury debt suggested the flight from risk was far from over.
The euro zone’s banking index Â ended Wednesday up 6.9 percent, but still appeared destined for a seventh straight weekly decline in the longest losing streak since 1998.
MSCI’s broadest index of Asia-Pacific shares outside Japan was flat in early trade, while Australia’s main index eked out a 0.3 percent gain.
The absence of Japan for a holiday might actually help the mood as Tokyo has been the hardest hit market this week. The Nikkei sank 7.6 percent in just two sessions as a surging yen dimmed the outlook for exports and profits.
In Washington, Yellen generally sounded optimistic about the outlook for the U.S. economy while also acknowledging the risks from market turmoil and a slowdown in China.
Analysts took that to mean a hike in March was unlikely, but further tightening was still possible later in the year.
The uncertainty made for a muddled finish on Wall Street. The Dow closed down 0.62 percent, while the S&P 500 lost just 0.02 percent and the Nasdaq added 0.35 percent.
U.S. stocks reestablished gains that at one point faded to 0.3 percent, while Treasuries pared losses as Janet Yellen indicated the Federal Reserve won’t be in a rush to tighten monetary policy amid heightened financial-market turmoil. Strength in the yen spurred intervention warnings.
The Standard & Poor’s 500 Index attempted to halt a three-day slide as Yellen indicated the Fed has a wary eye on volatility that could delay rate increases. Equities pared a gain of more than 1.5 percent after she said market fears of a recession are showing up in asset prices. Renewed selling in crude added to selling. Ten-year Treasury notes fluctuated before an auction. Foreign-exchange volatility climbed to the highest level in almost four years. Stocks in Europe rose for the first time in eight days, as Deutsche Bank AG helped allay fears about the creditworthiness of the region’s banks.
Yellen said in prepared testimony to Congress that the Fed still expects to raise rates gradually while making it clear that continued market turmoil could throw the central bank off course. She highlighted uncertainty over the pace of China’s growth and the related rout in commodities, concerns that have roiled financial markets throughout the year and twice pushed global shares to the brink of a bear market.
The S&P 500 climbed 0.7 percent at 12:02 p.m. in New York. Yellen noted that the appreciating dollar and falling equity prices have made financial conditions “less supportive of growth.”
The Chicago Board Options Exchange Volatility Index slid 4.5 percent to 25.40, snapping a four-day increase that saw the measure climb 23 percent. The gauge of price swings, which has surged 39 percent in 2016, is almost double its two-year average of 15.88.
Source : Bloomberg