Stocks ease, yen wobbles on political worries, gold cracks $4,000

SINGAPORE: Asian stocks tracked Wall Street lower on Wednesday as investors grappled with the fallout from political drama in France and Japan, while a prolonged U.S. government shutdown catapulted gold spot prices to a record $4,000 per ounce level.

The Japanese yen hovered near eight-month lows as investors awaited fiscal policy cues from prime minister-in-waiting Sanae Takaichi, while the euro was under pressure after French prime minister Sebastien Lecornu resigned on Monday.

That left the dollar fairly upbeat. The dollar index , which measures the U.S. currency against six other units, hit its highest level since the end of August, although sentiment remained dim as the shutdown was due to enter its eighth day.

In stocks, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1%, inching away from the 4-1/2 year high it hit on Tuesday. China and South Korea markets were closed for a long holiday.

Japan’s Nikkei rose 0.35%, just shy of the record peak touched in the previous session.

All eyes are on the Japanese markets after a surprise victory over the weekend for fiscal dove Takaichi spurred worries over the fiscal and monetary policy outlook, with traders swiftly cutting their bets on another hike this year.

“Takaichi’s victory in the ruling Liberal Democratic Party leadership race has shifted the balance of risks to a later rate hike in 2026,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Kong said option traders are now the least bearish on dollar/yen since September 2022 but she still expects the dollar to trend lower against the yen in the near term.

The yen weakened to 152.33 per U.S. dollar, trading at its lowest level since mid-February.

The yen is down over 3% for the week, on pace for steepest weekly decline in a year, stoking worries of intervention from Japanese authorities.

The euro fell 0.26% to $1.1628, hitting its lowest level in a month as markets braced for further political upheaval in France.

France’s President Emmanuel Macron faced growing pressure to resign or hold a snap parliamentary election to end political chaos that has forced the resignation of five prime ministers in less than two years.

The New Zealand dollar sank nearly 1% after the central bank slashed its benchmark rate by 50 basis points and kept the door open for further easing, suggesting policymakers were worried about the frail state of the economy.

Meanwhile, all three U.S. indexes ended in negative territory after a survey from the New York Federal Reserve showed deteriorating consumer expectations and rising inflation projections.

Investors have had to rely on secondary, independently produced data, along with remarks from monetary policymakers, to gauge the likelihood that the Federal Reserve will implement its second rate cut of the year at this month’s policy meeting.

Traders are pricing in 45 basis points of easing this year.

The prospect of impending rate cuts and safe haven demand has pushed gold prices higher.

It rose to $4,000.96 per ounce on Wednesday, taking its gains for the year beyond 50%.

Thierry Wizman, global FX & rates strategist at Macquarie Group, said gold’s rally is the collective “hedge” against the prospective failure of the U.S.’s AI-driven tech boom.

“A collapse of that optimistic ‘vision’ might trigger an inflationary resolution for the world’s sovereign debt overhang, rather than a productivity-based resolution.”