Asian shares inched lower on Tuesday as caution reigned ahead of a potentially tense meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping later this week. The dollar lost ground after investors sold stocks overnight and looked to safe havens as political uncertainty overshadowed positive U.S. economic data and solid growth in global manufacturing. MSCI's broadest index of Asia-Pacific shares outside Japan was fractionally lower. Japan's Nikkei fell 0.4 percent as investors sought out the safe-haven yen and as automakers tumbled on weaker-than-expected U.S. sales. Toshiba Corp, the worst performer on the index, slumped almost 9 percent after sources said it will meet creditor banks on Tuesday to ask them to accept as collateral shares in some of its businesses in exchange for not calling in their loans. Australian shares slid 0.2 percent despite an expansion in the country's February trade surplus to more than double the previous month's as exports of gold and minerals rebounded, while imports dropped. China, Hong Kong, Taiwan and India were closed for holidays. Adding to market jitters was an attack by a suspected Islamic suicide bomber on a metro train in St. Petersburg, Russia, that killed 11 people and injured 45. "Certainly a reaction had been seen towards the metro bomb at St Petersburg," Jingyi Pan, market strategist at IG in Singapore, wrote in a note.
The meeting between Trump and Xi will also "have due influence upon Asian markets and I would not be surprised if traders choose to stay on the side-lines to ride out these events." Overnight, U.S. stock indexes closed in the red after Trump held out the possibility of using trade as a lever to secure Chinese cooperation against North Korea in an interview with the Financial Times on Sunday. Last week, Trump tweeted that the highly anticipated meeting, which is also expected to cover differences over trade, North Korea and China's strategic ambitions in the South China Sea, "will be a very difficult one." That has kept investors on edge, knocking riskier assets and forcing investors into safe assets such as the yen, gold and Treasuries.
Data showing U.S. construction spending grew 0.8 percent to $1.19 trillion, the highest since April 2006, failed to boost sentiment, while a deceleration in U.S. auto sales in March reinforced investors' unease. Manufacturers across Europe and much of Asia had solid growth in May, making for a strong quarter overall, business surveys showed, but the rise of U.S. protectionism is keeping both investors and companies wary. European stock markets hit a 16-month high on Monday but failed to hold on to the gains as risk aversion returned. The pan-European STOXX 600 index closed down 0.5 percent. The 10-year U.S. Treasury yield fell to 2.3354. It touched a five-week low of 2.321 overnight."The dollar is feeling pressure against the yen from an interest rate spread point of view," said Shin Kadota, senior strategist at Barclays in Tokyo.
The dollar dropped 0.2 percent to 110.655 yen in its third straight session of losses. The dollar index, which tracks the greenback against a basket of six trade-weighted peers, fell almost 0.1 percent to 100.48, although it touched a 2-1/2-week high in the previous session. The euro was steady at $1.0667. In commodities, crude failed to recover from overnight losses on a rebound in Libyan output and an increase in U.S. drilling rig capacity, both of which exacerbated concerns about a glut. U.S. crude was little changed at $50.24 a barrel. Global benchmark Brent was flat at $53.12. Gold prices hit a one-week high before pulling back a little to trade almost 0.2 percent higher at $1,254.51 an ounce.
Richmond Federal Reserve President Jeffrey Lacker abruptly left the U.S. central bank on Tuesday after admitting that a conversation he had with a Wall Street analyst in 2012 may have disclosed confidential information about Fed policy options. The 2012 leak had triggered a criminal investigation after research firm Medley Global Advisors told its clients the details of a key Fed meeting a day before the Fed released its own record of the discussion. At the Fed's September 2012 policy meeting, officials laid the groundwork for the massive bond-buying stimulus they were to roll out later that year. Early knowledge of that discussion could have given some traders an unfair edge. Lacker who had previously announced he would retire in October, on Tuesday said he decided to make his departure effective immediately because of his role in the leak. It was not clear if Lacker was pushed out of his post. The Richmond Fed said in a statement that it took "appropriate actions" after learning the outcome of government investigations into the leak. Lacker's lawyer said he would not be facing charges. The Fed's inspector general, Mark Bialek, said in a separate statement that he was closing an investigation into the leak."I crossed the line," Lacker said in a statement, saying he never intended "to reveal confidential information" and that he may have broken rules against giving people an edge in business.
Lacker admitted to talking to an analyst from Medley in October 2012, but did not say he provided her with details about the Fed's policy options, which aimed to boost the economy following the 2007-09 financial crisis. Lacker said it was the Medley analyst who brought up confidential Fed information."I should have declined to comment and perhaps have ended the phone call. Instead, I did not refuse or express my inability to comment and the interview continued," Lacker said. In addition, Lacker said he had not fully disclosed details about his discussion with the Medley analyst when he was interviewed by a Fed lawyer later in 2012. But he said he did disclose further details in a 2015 interview with the Federal Bureau of Investigation.
Lacker gave no reason for the time gap between the 2015 interview and his statement on Tuesday. The Medley report triggered furor in the U.S. Congress and became a source of friction between the Fed and lawmakers, leading to a criminal investigation. "This development could hurt the Fed politically," said Roberto Perli, an economist at Cornerstone Macro. In May 2015, the chair of the House of Representatives Financial Services Committee, Jeb Hensarling, a Texas Republican who has called for stricter Congressional oversight of the central bank, subpoenaed Fed documents and communications related to the leak.
CRIMINAL INQUIRY Lacker, one of the U.S. central bank's most reliable proponents of interest rate increases, had led the Richmond Fed since 2004. During his tenure, he became known for his dissenting votes on policy. He voted against several Fed policy decisions in 2006 because he favored interest rate increases, while in 2009 he opposed Fed purchases of mortgage-backed securities, which were part of its bond-buying stimulus program. Days before his conversation with the Medley analyst, Lacker voted against increasing asset purchases at the Fed's September 2012 meeting. Lacker said his interview in 2015 with the FBI also involved the United States Attorney’s Office for the Southern District of New York, the Office of the Inspector General of the Federal Reserve Board and the U.S. Commodity Futures Trading Commission. The Richmond Fed is one of 12 regional reserve banks that are part of the U.S. central bank. They process payments and help regulate banks, while their presidents take turns as members of the Fed committee that sets interest rates.