By Ankur Banerjee SINGAPORE (Reuters) -Asian stocks fell and the dollar firmed on Wednesday as investors grappled with political drama in France and Japan, while a prolonged U.S. government shutdown catapulted gold spot prices beyond $4,000 per ounce for the first time. The prospect of impending rate cuts from the Federal Reserve and safe haven […]
Business
Stocks drop, gold cracks $4,000 on political anxiety
Audio By Carbonatix
By Ankur Banerjee
SINGAPORE (Reuters) -Asian stocks fell and the dollar firmed on Wednesday as investors grappled with political drama in France and Japan, while a prolonged U.S. government shutdown catapulted gold spot prices beyond $4,000 per ounce for the first time.
The prospect of impending rate cuts from the Federal Reserve and safe haven demand due to economic and political worries this year have pushed gold prices higher. Spot gold rose 1% to $4,021.22 per ounce, taking its gains for the year beyond 50%.
Traditionally, gold is seen as a store of value during times of instability, and this rally has also been driven by solid central bank buying, inflows into gold exchange-traded funds and a weak dollar.
“Funds and global reserve managers want a hedge against fiscal recklessness, currency debasement, and unpredictable government policy, and gold sits squarely at the heart of that movement,” said Chris Weston, head of research at Pepperstone.
Thierry Wizman, global FX & rates strategist at Macquarie Group, said gold’s rally is the collective “hedge” against the prospective failure of the American AI-driven tech boom.
“A collapse of that optimistic ‘vision’ might trigger an inflationary resolution for the world’s sovereign debt overhang, rather than a productivity-based resolution.”
In stocks, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8%, inching away from the 4-1/2 year high it hit on Tuesday, tracking Wall Street’s move lower.
China and South Korea markets were closed for a long holiday. Hong Kong’s Hang Seng Index is down 1%. Japan’s Nikkei eased 0.35%, after hitting a record peak in the previous session.
FRENCH WORRIES ARE BACK
European futures indicated a muted open ahead while the euro stayed under pressure after French prime minister Sebastien Lecornu resigned on Monday, heralding yet another period of political instability for France.
The euro was last down 0.35% at $1.1617, hitting its lowest level in a month as France’s President Emmanuel Macron faced growing pressure to resign or hold a snap parliamentary election.
The political chaos engulfing the nation has forced the resignation of five prime ministers in less than two years, spurring investor worries about France’s fiscal health.
Political shifts have also led the yen lower this week, with the currency at eight-month lows as investors await fiscal policy cues from prime minister-in-waiting Sanae Takaichi. It last fetched 152.40 per U.S. dollar.
Fiscal dove Takaichi’s victory over the weekend spurred worries over the fiscal and monetary policy outlook, with traders swiftly cutting their bets on another hike this year.
The yen is down over 3% for the week, on pace for steepest weekly decline in a year, stoking worries of intervention from Japanese authorities.
Hirofumi Suzuki, chief currency strategist at SMBC, said should the yen head towards near 160 within one to two weeks, “FX intervention by the Japanese government would be viewed as more likely.”
“From a medium to long term perspective, an impact on U.S.–Japan trade relations would also be expected,” he said.
The New Zealand dollar sank nearly 1% after the central bank slashed its benchmark rate by 50 basis points and kept the door open for further easing, suggesting policymakers were worried about the frail state of the economy.
Investors have had to rely on secondary, independently produced U.S. data, along with remarks from monetary policymakers, to gauge the likelihood that the Fed will implement its second rate cut of the year at this month’s policy meeting.
Traders are pricing in 45 basis points of easing this year.
The dollar index, which measures the U.S. currency against six other units, hit its highest level since the end of August, although sentiment remained dim as the shutdown was due to enter its eighth day.
Oil prices rose on Wednesday as investors brushed off oversupply fears, having digested a decision earlier by OPEC+ to restrain production increases next month.
Brent crude futures gained 0.7% to $65.91 a barrel. U.S. West Texas Intermediate crude 0.79% to $62.22. [O/R]
(Reporting by Ankur Banerjee; Editing by Sam Holmes)