Asia stocks down, dollar on defensive, gripped by risk aversion

South Korea’s KOSPI was down 0.2 per cent and on track for its fifth straight day of losses. TOKYO: Asian stocks tracked Wall Street’s slide overnight to slip on Wednesday while the dollar was on the defensive with tensions in the Korean Peninsula showing little signs of abating.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.15 per cent.

Japan’s Nikkei shed 0.55 per cent and Australian stocks lost 0.3 per cent.

South Korea’s KOSPI was down 0.2 per cent and on track for its fifth straight day of losses.

Geopolitical concerns continued to simmer following North Korea’s biggest-ever nuclear test on Sunday. Pyongyang is ready to send «more gift packages» to the United States, one of its top diplomats said on Tuesday.

Against such a backdrop US stocks sank overnight, with the S&P 500 stumbling to its biggest single-day loss in about three weeks.

«Risks emanating from the Korean Peninsula have a broad impact particularly in East Asia, but after a few days the effects begin to fade in other regions, like those of emerging markets,» said Kota Hirayama, senior market economist at SMBC Nikko Securities.

Emerging markets are likely to shift their focus to the European Central Bank policy meeting and then the US Federal Reserve’s Open Market Committee (FOMC) gathering, Hirayama said.

«The steady flow of foreign investor funds into emerging markets have shown signs of abating lately. Euro zone and US monetary policies could prove crucial in dictating these flows.»

The dollar posted losses, notably against the Japanese yen and Swiss franc, reflecting the risk-averse mood in the broader markets.

The European Central Bank holds a policy meeting on Thursday and investors are keen to see whether it will send a message regarding the timing of an exit from its ultra-loose monetary policy.

Fed policy makers will gather on Sept. 19-20.

The greenback was down 0.2 per cent at 108.630 yen after losing about 0.9 per cent overnight, its biggest one-day drop in three months.

The Swiss franc was slightly higher at $0.9540 per dollar having gained more than 1 per cent so far this week.

The dollar suffered further after Federal Reserve Governor Lael Brainard said on Tuesday inflation was «well short» of target, in the clearest signal yet the central bank is getting more dovish in the face of weak data.

The dollar index against a basket of six major currencies was little changed at 92.240 after losing 0.4 per cent the previous day.

The euro was 0.1 per cent higher at $1.1924 and on the way for its third straight day of gains, albeit modest ones, ahead of Thursday’s ECB policy meeting.

Government debt benefited from the risk-averse mood, with the 10-year US Treasury yield extending its sharp overnight slide and falling to a 10-month low of 2.054 per cent.

In commodities, safe-haven gold hovered near one-year highs as the dollar eased and flight-to-safety demand remained robust thanks to geopolitical risks.

Spot gold was 0.2 per cent higher at $1,341.31 an ounce after touching $1,344.21 overnight, its highest since September 2016.

Crude oil prices edged lower after the previous day’s rally ran its course. Crude surged on Tuesday as the gradual restart of refineries in the US Gulf that were shut by Hurricane Harvey raised demand.

US crude futures was down 0.15 per cent at $48.58 a barrel after climbing 2.8 per cent overnight.

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