TOKYO (Reuters) - Asian stocks and commodities extended losses on Wednesday, feeling the aftershocks of China’s surprise devaluation of the yuan, which hit U.S. equities overnight and pushed down already-weak emerging currencies.
This benefitted the dollar, which rallied even against the safe-haven yen.
What caught the equity, commodity and currency markets off balance was a boon to key government debt such as U.S. Treasuries, German bunds and Japanese government bonds.
Taking early cues from Wall Street’s overnight slide, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.2 percent to hit its lowest level since February 2014, although the decline was smaller than the previous day’s 1.4 percent slide.
The Dow .DJI fell 1.2 percent and the S&P 500 .SPX shed 1 percent overnight as China's devaluation of the yuan on Tuesday hit companies with large exposure to the world's second biggest economy, such as Apple Inc (AAPL.O) and Caterpillar (CAT.N). [.N]
China devalued the yuan by nearly 2 percent on Tuesday in an attempt to prop up its flagging economy. The yuan’s biggest fall since 1994 hit emerging currencies from South Korea to South Africa, making the dollar broadly sought.
The dollar stood near a two-month high of 125.21 yen JPY= brushing aside a slide in U.S. Treasury yields and speculation now held by some that the Federal Reserve could delay hiking interest rates in the wake of China's move. The euro hovered close to a two-week low of $1.1089 EUR=.
The Australian dollar, which tanked 1.5 percent overnight due to its status as a liquid China proxy, limped up 0.2 percent to $0.7316 AUD=D4.
Analysts pondered how investors will react to China’s surprise decision once the dust begins to settle.
“The bottom line is that we believe investors will orientate portfolios towards more rate cuts rather than currency weakness. Real rates are way too high, in our view,” wrote Sean Darby, chief global equity strategist at Jeffries.
Meanwhile, the devaluation by the People’s Bank of China (PBOC) also raised further questions regarding the health of the Chinese economy and cooled appetite for risky assets and commodities.
U.S. crude fell more than 4 percent overnight to a six-year low before managing to recover 1.1 percent to $43.57 a barrel CLc1 early on Wednesday. [O/R]
Copper and aluminium also hit six-year lows on Tuesday after China devalued its currency, fuelling worries about a glut of aluminium and boosting the cost of commodities for the world’s top metals consumer. [MET/L]
Copper posted a modest bounce after the overnight slide, with three-month copper on the London Metal Exchange (LME) edging up 0.7 percent to $5,159 a tonne CMCU3.
The benchmark 10-year Treasury note yield US10YT=RR declined to a two-month low of 2.114 percent overnight before pulling back to 2.155 percent. Its 10-year Japanese counterpart fell to a three-month trough of 0.38 percent JP10YTN=JBTC.
Editing by Richard Borsuk