Asia stocks steady, sentiment fragile ahead of Brexit vote

[June 22, 2016]  By Hideyuki Sano
 
 TOKYO (Reuters) - Asian stocks were steady on Wednesday as nervous investors counted down to Britain's make-or-break EU referendum, while Federal Reserve Chair Janet Yellen's cautious tone on future rate hikes added to a subdued mood in markets.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent though Japan's Nikkei shed 0.7 percent.

On Wall Street, U.S. S&P 500 Index gained 0.27 percent but was still below an 11-month high touched earlier this month.

Fed chief Yellen said on Tuesday the Fed's ability to raise interest rates this year may hinge on a rebound in hiring that would convince policymakers the U.S. economy isn't faltering.

"A couple of months ago, Yellen was cautiously optimistic. Now she appears cautious while trying to be optimistic," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

"Judging from her comments, a rate hike in July is completely off the table. It is questionable whether the Fed can have enough solid economic data to back up a rate hike even by September," he said.

Yellen's more circumspect view on the future path of U.S. rates comes as many investors remain on the sidelines ahead of Thursday's British referendum on its European Union membership.

Polls in recent days showing rising momentum for the "Remain" camp helped boost risk appetite in global markets and weighed on safe-haven assets such as German bonds and the Japanese yen since Friday.

But many investors are shunning trading as the vote remains too close to call, with an opinion poll published on Tuesday showing the "Remain" campaign's lead had shrunk.

In the currency market, the British pound rose to as high as $1.4788 on Tuesday, its loftiest level since January 4, but it has since edged back to $1.4667 by early Asian trade.

The implied volatilities of the pound have also pushed up from lows on Tuesday, reflecting investors' anxiety over a sharp fall in the currency in the event of Brexit.

For the latest Reuters news on the referendum including full multimedia coverage, click

The euro also slipped to $1.1250, compared to this week's high of $1.1383 hit on Monday, turning negative on the week.

Pedestrians are reflected in an electronic board showing the graph of the recent fluctuations of the exchange rates between the Japanese yen against the U.S. outside a brokerage in Tokyo, Japan, February 4, 2016. REUTERS/Yuya Shino

European Central Bank President Mario Draghi said on Tuesday that Britain's referendum was adding uncertainty to markets, and that the ECB was ready to act with all instruments if necessary.

The yen stood at 104.78 yen to the dollar, having slipped slightly on Tuesday but still not far from its 22-month high of 103.555 hit last week.

On the other hand, oil prices extended their recovery after data showing a larger-than-expected draw in U.S. crude stockpiles.

Crude inventories fell by 5.2 million barrels for the week ended June 17, the American Petroleum Institute (API) said. The trade group's figures were triple the draw of 1.7 million barrels forecast by analysts in a Reuters poll. <API/S>

Brent crude futures rose to as high as $51.10 per barrel late on Tuesday, its highest level since June 10, and last stood at $50.88.

U.S. crude futures' new benchmark August contract traded at $50.23 per barrel.

(Editing by Shri Navaratnam)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.