By Kenan Machado
Investors in Asia turned cautious Friday ahead of a meeting of finance chiefs from the Group of 20 industrialized and emerging economies, where U.S. Treasury Secretary Steven Mnuchin is widely expected to pressure countries to boost the value of their currencies.
Traders are monitoring how China and Japan will react to pressure from Mnuchin to strengthen their currencies against the U.S. dollar, said Khoon Goh, head of research for Asia at ANZ. “There is a lot of interest if there will be any material changes out of the G-20,” he said.
Mnuchin is expected to urge China, Japan, Germany and other G-20 members to keep their promise to not use their exchange rates for competitive gains, as President Donald Trump, says countries that export to the U.S. keep their currencies weak against the dollar, giving them an unfair advantage..
“Caution is the watchword in early Asia-Pacific trading today,” said Michael McCarthy, the chief market strategist at broker CMC Markets.
In morning trade, the Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK -0.78% extended opening declines to trade 0.4% lower, despite a weaker yen, which usually boosts stocks.
Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +0.35% slipped into negative territory after closing at a 19-month high Thursday, and the Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP +1.74% was down 0.1%.
Rising commodity prices helped Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO -1.54% gain 0.3% and stave off pressure from weak oil prices.
Weakness in the energy sector weighed on the S&P 500, which fell 0.16% overnight.
Japan’s auto and pharmaceutical stocks led declines, with Subaru maker Fuji Heavy Industries /zigman2/quotes/203522406/delayed JP:7270 -1.55% shedding 2.2% and Astellas Pharma /zigman2/quotes/205432752/delayed JP:4503 -0.35% losing 2.3%.
Japanese government bonds ticked lower as an overnight pullback in the U.S. and Europe spilled into Asian sovereign debt.
Overnight, demand for safe-haven government bonds weakened on relief from preliminary Dutch election results, which put Prime Minister Mark Rutte’s center-right party in a strong position to form a new ruling coalition, allaying fears of a victory by right-wing candidate Geert Wilders, who wanted to take the Netherlands out of the European Union.
“There is palpable relief that the [Dutch] polls were wrong, that the popular vote was understated [and the support for Mr. Wilders was overstated],” said Klaus Baader, chief Asia Pacific economist for Société Générale.
But the initial bullish reaction to the Fed’s perceived dovish pace of rate increases moderated Friday, as traders realized that central banks remained on a path to tighter monetary policy.
The Bank of England signaled that an increase may not be far off, and the People’s Bank of China raised its short-term rates.
“The story in global markets over the past 24 hours has centered on a broad-based tightening of monetary policy conditions [and the perception of future tightening],” said Chris Weston, the chief market strategist for IG Markets.