Australia Cuts Interest Rates to Record Low, Asian Shares React

People wait for a train at Circular Quay near the harbour in Sydney on July 5, 2016. Australia's central bank on July 5 held interest rates steady at an all-time low of 1.75 percent, with uncertainty about the Brexit impact and inflation outlook making it "prudent" to stay on hold. / AFP / PETER PARKS (Photo credit should read PETER PARKS/AFP/Getty Images)
PETER PARKS/ AFP/ Getty Images

Asian shares slipped on Tuesday, taking their cues from a modestly lower day on Wall Street, while crude oil prices stabilized after their overnight tumble and the U.S. dollar edged higher.

European markets are set to open flat to slightly lower, with financial spreadbetter CMC Markets expecting Britain’s FTSE 100 and France’s CAC 40 to open 0.1% lower and Germany’s DAX to start the day flat.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4%, after the S&P 500 ended Monday 0.1% lower, despite hitting an intraday record high.

Australian shares were down 0.6% after the Reserve Bank of Australia’s policy board decided to cut its benchmark interest rate by 25 basis points to an all-time low of 1.50%, as expected.

The Australian dollar fell to as low as $0.75 after the RBA decision, but shrank losses to trade down 0.3% at $0.7523.

See also: With Growing Worries of Deflation, Is Australia Becoming ‘Desensitized to Sales’?

Trading in Hong Kong was suspended for the day as Typhoon Nida swept through the city, shutting down most of the financial hub.

Japan’s Nikkei stock index slipped 1.1%.

The Nikkei gained more than 6% in July, when monetary and fiscal stimulus hopes propelled it to 1-1/2-month highs.

Prime Minister Shinzo Abe’s cabinet is likely to approve a 28 trillion yen ($273 billion) stimulus package on Tuesday, though direct fiscal spending will total only about 7 trillion yen, according to two people briefed on the matter.

“The size and rough contents of the package are already known so I doubt it will move markets. The dollar/yen is likely to fall unless there are clearer signs of a rate hike by the Fed,” said Shinichiro Kadota, senior FX and rates strategist at Barclays Securities Japan.

See also: Bank of Japan Expands Stimulus, Disappointing Investors

Japanese government bonds skidded in their worst sell-off in more than three years, despite weaker stocks, accelerating a slide begun in the wake of last Friday’s Bank of Japan easing steps that disappointed many investors. The benchmark 10-year JGB yield was up 9 basis points at minus 0.050%, touching its highest levels since early April.

The dollar reversed early losses and added 0.1% to buy 102.45 yen, while the euro was also 0.1% higher at $1.1170.

The dollar index, which tracks the U.S. currency against a basket of six major peers, was little changed at 95.693, holding above Friday’s 95.384, its lowest since July 5.

See also: Here’s the One Sentence From the July Fed Statement That Everyone Is Reading

The dollar’s upside was heavy on dwindling expectations that the U.S. Federal Reserve is gearing up to hike rates this year, which faded further after Monday’s weaker-than-expected manufacturing data.

The Institute for Supply Management’s (ISM) index of national factory activity dropped to 52.6 in July from 53.2 in June, below market expectations of 53.0.

U.S. crude tumbled below $40 per barrel on Monday for the first time since April, on heightened worries of a supply glut despite peak summer gasoline demand. But it edged back up on Tuesday, adding 0.1% to $40.11 a barrel, after shedding 3.7% on Monday.

Brent crude was 0.4% higher at $42.30 after closing down 3.2%.

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