Asia shares drift lower as investors factor in Fed rate hike

HONG KONG – Asia stock markets drifted lower Friday as investors bet that the Fed is closer to rate hike because of the brightening U.S. corporate and economic outlook. Oil slid as the dollar rallied on hopes for more European monetary stimulus.

KEEPING SCORE: Japan’s benchmark Nikkei 225 index lost 0.3 per cent to 17,189.67 and South Korea’s Kospi lost 0.4 per cent to 2,031.66. The Shanghai Composite Index in mainland China fell 0.4 per cent to 3,073.38 and Australia’s S&P/ASX 200 lost 0.3 per cent to 5,425.90. Benchmarks in Southeast Asia were mixed. Hong Kong’s stock market was closed due to a typhoon.

EARNINGS SEASON: Investors are starting to factor in a higher chance of a Fed rate hike following the latest corporate and economic data from the world’s biggest economy. Most U.S. companies have been posting quarterly earnings reports that have beaten analyst expectations. Meanwhile, weekly applications for jobless benefits remained near a 43-year low while second-hand home sales rose at their strongest pace since June, reports said Thursday.

ANALYST INSIGHT: “While expectations for a December Fed rate hike are continuing to build, investment markets seem to be taking it a bit better than was the case in the run up to last December’s eventual rate hike,” Shane Oliver, head of investment strategy at AMP Capital, said in a report. He cited three differences from a year ago: a more positive global and U.S. growth outlook; U.S. earnings bottoming out rather than getting worse; and lower uncertainty over capital outflows from China and its yuan currency.

ECB STIMULUS: At a news conference on Thursday, the head of the European Central Bank kept alive the possibility that it could extend its stimulus program beyond March, the earliest possible end date. Mario Draghi said a decision on the 1.7 trillion euro ($1.9 trillion) bond-buying program would not come until December, which was widely expected. But he added it’s unlikely there would be an “abrupt end” to the program. That sent the euro lower.

WALL STREET: Major U.S. benchmarks ended little changed. The Dow Jones industrial average slipped 0.2 per cent to 18,162.35. The Standard & Poor’s 500 index lost 0.2 per cent to 2,141.34. The Nasdaq composite index crept 0.1 per cent lower to 5,241.83.

CURRENCIES: The dollar slipped to 103.89 yen from 104.08 on Thursday. The euro weakened to $1.0901 from $1.0927. The official exchange rate for the Chinese currency yuan fell to a six-year low against the dollar of 6.7558 yuan as investors bet that an eventual interest rate hike in the U.S. will boost the dollar.

ENERGY: Oil futures extended losses on the strength of the greenback, which makes crude more expensive for buyers using other currencies. Benchmark U.S. crude lost 27 cents to $50.36 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.17, or 2.3 per cent, to close at $50.43 a barrel on Thursday. Brent crude, used to price international oils, slid 22 cents to $51.16 a barrel in London.