Broadgate: Market News 22/8
22 August 2012
Asian shares slipped on Wednesday as slumping Japanese exports reminded investors of the risks the euro zone debt crisis poses to regional economies, but the euro held steady on expectations the European Central Bank will act to rein in surging borrowing costs.
A rise in the CBOE Volatility Index, a gauge of Wall Street’s sensitivity to risk, and a pause in the recent run-up in U.S. Treasury yields, however, suggested investors were yet to be convinced that Europe’s three-year crisis is close to resolution.
Japan’s exports fell an annual 8.1 percent in July, the deepest drop in six months, dragged down by collapsing shipments to Europe and a sharp fall in sales to China. The fragile report from the world’s third-biggest economy followed similarly bleak data from export-reliant South Korea and Taiwan.
Growth worries weighed on oil, with Brent little changed at $114.68 a barrel and U.S. crude also flat around $96.80. Copper shed 0.6 percent to $7,562.75 a tonne ahead of earnings from top global miner BHP Billiton, which may put three mega projects on hold on Wednesday when it will likely report its first annual profit fall in three years.
BHP will wrap up a torrid earnings season for the world’s biggest miners, all battered by weaker prices for iron ore, copper, coal, nickel and aluminum as economic growth in big-buyer China slows to its weakest pace in a decade.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7 percent, led by more than 1 percent declines in both the energy and materials sectors. Japan’s Nikkei stock average slid 0.9 percent as investors cashed in gains after a sharp run-up on mounting hopes for ECB action.
“Economic data confirmed fundamentals are not strong, with a slowdown in China, which relies heavily on exports to Europe, having material effects elsewhere,” said Takeo Okuhara, a fund manager at Daiwa SB Investments.
“The recent rally in riskier assets had been built on a lull in Europe, so they are ready to face a correction when hopes for something unrealistic fade,” he said, referring to speculation that the ECB would buy bonds to cap the yields of troubled euro zone sovereigns.
Asian equities are not yet overbought, however, judging from the amount of net foreign buying, which stood at $8.1 billion so far in August, Credit Suisse said in a research note. Flows of foreign capital remain important direction-setters for many Asian markets.
Net foreign buying on a rolling 12-month basis is 0.6 percent of market capitalization, below the 1 percent level seen overbought, the Credit Suisse note said, while net foreign buying over two months stands at 0.26 percent, less than the 0.6 percent or more seen as overheated.
ECB SPECULATION DIES HARD
Speculation that the ECB will take a decisive step to cut borrowing costs for Spain and Italy gained further momentum with an article in London’s Daily Telegraph, which said the ECB was examining plans to put a hard cap on Spanish and Italian yields.
A similar report on the ECB’s bond-buying scheme in German media was on Monday denied by the bank, which also repeated its stance in response to the latest British report.
Meanwhile, German Chancellor Angela Merkel voiced support for the ECB’s crisis-fighting strategy last week.
“The market rallied on growing convictions that Germany stands ready to do more to keep the euro zone united. Merkel’s government seems more willing to ease the official debt burden on Greece, as long as the basic elements of the second bailout programme remain,” Barclays Capital said in a research note.
The euro traded at $1.2465, not far from $1.2488 hit on Tuesday, its highest since July 5.
The dollar was down 0.1 percent against the yen at 79.22 yen, off a five-week high at 79.66 yen hit on Monday.
U.S. stocks fell on Tuesday as investors took profits after driving the Standard & Poor’s 500 index to a four-year high, while European shares rose and yields in Spain and Italy fell further. Spain’s 10-year debt yields have shed about 8 percent this month.
Greek Prime Minister Antonis Samaras is holding bilateral talks with leaders of France, Germany and the Eurogroup this week to seek concessions for its austerity-to-bailout swap. His meeting with Merkel is set for Friday.
Spot gold steadied around $1,638.66 an ounce after hitting a 3-1/2 month high of $1,641.20 on Tuesday, while platinum also retreated from its highest since early May at $1,508.25 hit the previous session.
Asian credit markets were weaker, pushing the spread on the iTraxx Asia ex-Japan investment-grade index by two basis points.
Brent crude steadied near $115 a barrel on Wednesday, supported by hopes that European policymakers will act to resolve the region’s debt crisis and by Middle East tensions that kept supply disruption concerns intact.
Brent October futures slipped 1 cent to 114.63 per barrel at 0340 GMT. It rose to as much as $115.58 on Tuesday, the highest since it touched a three-month peak of $117.03 last week. U.S. crude fell 9 cents to $96.75 per barrel.
Gold on Wednesday hovered near a 3-1/2 month high hit in the previous session, as investors remained hopeful the European Central Bank would soon take action to contain the region’s debt crisis.
Spot gold was little changed at $1,638.49 an ounce by 0308 GMT, after hitting $1,641.20 in the previous session, its highest since early May.
The U.S. gold futures contract for December delivery edged down 0.1 percent to $1,641.20
The euro was steady in Asian trading on Wednesday after hitting seven-week highs in the previous session, with investors waiting to see whether European policymakers will take action to stem the region’s debt crisis.
The euro changed hands at $1.2464, not far from its Tuesday peak of $1.2488 on the EBS trading platform and marking its highest level since July 5. The single currency skidded to a two-year low of $1.2040 less than a month ago, on July 24.
Against its Japanese counterpart, the euro bought 98.75 yen, not far from a seven-week high of 99.18 yen hit on Tuesday.
The dollar eased slightly against the yen to 79.24 yen, moving away from a five-week high of 79.66 yen hit on Monday. But since last week it has remained solidly above its 14-day moving average, now at 78.82 yen.
The Australian dollar was down about 0.3 percent against the greenback, buying $1.0453, though holding above a three-week low of $1.0411 hit late last week.
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