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Asia stocks set to track U.S. drop on virus spread

(Aug 18): Asian stocks look set to come under pressure Wednesday after U.S. equities suffered their worst drop in a month on concern that a resurgent coronavirus will hurt the economic recovery. A gauge of the dollar rallied.

Futures fell in Australia and Hong Kong and wavered in Japan. U.S. contracts dipped after the S&P 500 snapped a five-day rally and the tech-heavy Nasdaq 100 retreated. Chinese equities listed in the U.S. tumbled again after Beijing ramped up a regulatory crackdown, with Alibaba Group Holding Ltd., Baidu Inc. and JD.com Inc. among those suffering.

Treasuries were steady ahead of the release of the latest Federal Reserve minutes on Wednesday and the outlook for yields remains highly uncertain. Traders are evaluating whether elevated inflation will prove transitory, while also monitoring the impact of the delta virus variant and the prospect of reduced stimulus support.

For some investors the rally in global stocks is due for a pause after a 90% advance from last year’s pandemic lows, as the fast-spreading delta strain impedes reopening and fans worries that economic growth is peaking. Meanwhile, the Jackson Hole symposium next week — the Fed’s most-prominent annual conference — may offer clues about when and how the central bank will taper bond purchases.

“We’re essentially in a bit of a holding period ahead of Jackson Hole,” wrote Craig Erlam, senior market analyst at Oanda Europe. “While there is a fair amount of data releases this week, some of which may carry a little more weight than others, it’s all about the Fed in these markets at the minute, and that’s unlikely to change unless the delta situation gets dramatically worse.”

In a town hall meeting Tuesday, Fed Chair Jerome Powell flagged that the pandemic is “still casting a shadow on economic activity” but didn’t discuss the outlook for monetary policy or make specific comment on growth and the risks from the delta variant.

Adding to a string of soft data, U.S. retail sales fell in July by more than forecast, reflecting a steady shift in spending toward services and indicating consumers may be growing more price conscious as inflation picks up.

Crude oil held losses, pressured by the rising dollar and the uneven U.S. recovery. Bitcoin was trading below US$45,000.

Meanwhile, New Zealand enters a lockdown after reporting its first community transmission since February. Switzerland recorded its biggest jump in infections in months. South Africa expects a fourth wave to start in early December.

Here are some events to watch this week:

    Reserve Bank of New Zealand policy decision and briefing by Governor Adrian Orr Wednesday
    FOMC minutes released Wednesday
    Bank Indonesia rate decision and Governor Perry Warjiyo briefing Thursday

Some of the main moves in markets:
Stocks

    S&P 500 futures dropped 0.1% as of 7:11 a.m. in Tokyo. The S&P 500 fell 0.7%
    Nasdaq 100 futures retreated 0.2%. The Nasdaq 100 fell 0.9%
    Nikkei 225 futures were flat
    Australia’s S&P/ASX 200 Index futures fell 0.5%
    Hang Seng Index futures lost 0.3% earlier

Currencies

    The Bloomberg Dollar Spot Index rose 0.5%
    The euro was at $1.1706
    The Japanese yen traded at 109.56 per dollar
    The offshore yuan was at 6.4930 per dollar

Bonds

    The yield on 10-year Treasuries was little changed at 1.26%

Commodities

    West Texas Intermediate crude was at US$66.65 a barrel
    Gold was at US$1,785.83 an ounce

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