SYDNEY, Nov 28 2017 : Asian shares stepped back from decade highs today on worries about another sharp sell-off in Chinese stock markets, while the U.S. dollar trod water ahead of a crucial vote for a tax reform in the world’s largest economy.
Investor confidence in China has been dented by rising bond yields as Beijing steps up its crackdown on shadow banking and other riskier forms of financing. Higher borrowing costs threaten to squeeze corporate profits.
Mainland stocks have jumped 24 percent in 2017 .CSI300, with the gains concentrated in a handful of large index-weighted stocks.
“The question is whether further downside in Chinese mainland equities continues in the session ahead and will there be a spillover into Hong Kong and potentially even Japan, Korea and Australia.”
MSCI’s broadest index of Asia-Pacific shares outside Japan eased from a decade peak, although it was on track to end November in the black.
Australian shares rose 0.2 percent while Japan’s Nikkei .N225 slipped 0.3 percent.
The dollar was a touch softer on the yen at 110.96 JPY=, and within spitting distance of a recent 2-1/2-month low, as bulls fret about potential delays in U.S. tax cuts.
The euro EUR= was steady at $1.1906, within striking distance of a two-month high.
The dollar got a brief boost overnight after President Donald Trump tweeted that the tax cut bill was ‘coming along very well.’
The tweet came after a meeting with Senate Republican tax-writers on Monday ahead of a crucial vote on the Senate floor that could come as early as Thursday.
Separately, the U.S. Senate Banking Committee holds a hearing today to confirm the nomination of Jerome Powell at the helm of the Federal Reserve. If confirmed, Powell will have to balance tightening policy against still sluggish wages and inflation.
The bond market is concerned the Fed will hike rates too far, keeping inflation too low and ultimately slowing the economy.
That has been a major force in the remarkable pace of curve flattening in recent weeks. The 2s/10s yield curve is only 58 basis points from inverting – a classic signal that recession is just around the corner.
In commodity markets, U.S. light crude was off 26 cents at $57.85, having fallen more than a dollar overnight. Brent crude held at $63.84, not far from a near 2-1/2 year peak of $64.65 touched earlier this month.
Spot gold inched higher to $1,296.12. – Reuters