Broadgate: Market News 5/3
5 March 2013
Asian shares rebounded sharply on Tuesday, reclaiming most of the previous day’s steep losses triggered by slumping Chinese stocks, as a globally accommodative monetary stance helped revive risk appetite.
European markets are also seen climbing, with financial spreadbetters predicting London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX would open up as much as 0.6 percent. A nearly flat showing in U.S. stock futures pointed to a subdued Wall Street start.
The MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1 percent after tumbling 1.3 percent when Chinese shares dived on concerns Beijing’s move to tighten the housing market could weigh on growth on Monday.
China shares rebounded from a two-month closing low, lifting Hong Kong markets up 0.1 percent, as worries about policy tightening ebbed after the central bank refrained from draining funds following a sharp dip in rates in the money market. Shanghai shares rose 0.9 percent.
The latest data confirmed a modest rebound in the world’s second-biggest economy this year, with the private February HSBC Services Purchasing Managers’ Index (PMI) falling to 52.1 from January’s 54.0, after seasonal adjustments.
Beijing pledged to boost fiscal spending in a bid to deliver economic growth of 7.5 percent this year, with outgoing Premier Wen Jiabao setting out a reform plan as China’s annual parliament meetings got under way on Tuesday.
“The Chinese economy will decelerate from the second quarter, but the slowdown is not significant enough to derail the economic recovery,” said Dariusz Kowalczyk, senior economist and strategist for non-Japan Asia at Credit Agricole CIB in Hong Kong, adding that Monday’s sell-off in Chinese shares was “justifiable” because markets tend to move ahead of growth direction.
“As property curbs are expanded, real estate construction may well slow to the point of adding additional downward pressure on the economy. However, the 7.5 percent growth target announced today is safe,” he said.
Australian stocks outperformed their Asian peers with a 1.3 percent rally, with financials and consumer staple shares leading gains after healthy retail figures and export data supported an upbeat outlook for the economy.
The Reserve Bank of Australia kept its cash rate at a record low 3.0 percent as expected, boosting the Australian dollar to its day high of $1.0254.
The RBA kicked off a series of monetary policy meetings taking place this week. Major central banks around the world are expected to maintain a dovish stance, given fragile economic conditions, political uncertainties in Europe, and U.S. budget wrangling. Analysts also say none of the uncertainties is seen as a risk serious enough to trigger a financial crisis.
Janet Yellen, the Federal Reserve’s vice chair, said on Monday the U.S. central bank’s aggressive monetary stimulus is warranted given how far the economy was operating below its full potential.
“Despite spending cuts in the U.S., a lack of any kind of political resolution in Italy and weaker data in Asia, we just can’t get a proper ‘risk-off’ mood going … as mad money (quantitative easing and zero interest rate policy) trumps every other concern,” said Kit Juckes, strategist at Societe Generale in a note to clients.
Japan’s Nikkei stock average closed up 0.3 percent, after earlier scaling a fresh 53-month high.
The dollar slipped 0.5 percent against the yen to 92.96 yen on what traders see as “sell-the-fact” behavior after candidates for two Bank of Japan deputy governor posts faced parliamentary confirmation hearings.
Expectations that the new BOJ regime, to start later this month, will take much bolder reflationary measures pushed the benchmark 10-year Japanese government bond yield down as low as 0.585 percent earlier, its lowest since June 2003.
Aside from the Chinese government’s action to cool the overheated property market, there is concern about U.S. growth slowing after the automatic “sequestration” spending cuts were allowed to kick in starting March 1.
Ongoing political turmoil in Italy also remains a potential risk as last month’s inconclusive election could pave the way for another vote within months. But expectations the European Central Bank would use its scheme to help fund struggling euro zone nations underpinned investor confidence.
The euro held steady around $1.3040.
The ECB holds its policy meeting on Thursday, and while few expect the central bank to cut interest rates this week, many see such an action to come sooner than later.
Later in the week the BOJ and the Bank of England hold their meetings.
Spot gold added 0.5 percent to $1,581.30 an ounce, snapping a four-day losing streak.
U.S. crude was up 0.3 percent at $90.38 a barrel while Brent rose 0.4 percent to $110.53.
“I would call this move in the oil markets as bargain hunting rather than any change in the outlook,” said Ker Chung Yang, senior investment analyst at Phillip Futures in Singapore.
The dollar fell against the yen on Tuesday, pressured by a sell-the-fact reaction following the confirmation hearings of the government’s nominees for the two Bank of Japan deputy governor posts.
Kikuo Iwata, nominated by the government for one of the central bank’s two deputy governorships, said that foreign bond purchases would be a policy option only if other initiatives failed.
Hiroshi Nakaso, the government’s nominee for the BOJ’s other deputy governorship, said on Tuesday he would guide monetary policy without being bound by precedent.
The dollar fell 0.6 percent to 92.97 yen, pulling away from a high of 94.77 yen struck on February 25, which was the dollar’s highest level against the yen since May 2010.
The dollar’s drop against the yen is mostly a reflection of market positioning, said Jesper Bargmann, Asia head of G11 spot FX for RBS in Singapore.
Traders were probably long dollar/yen going into Tuesday’s confirmation hearings of Iwata and Nakaso, Bargmann said.
“I think what’s happening is a little bit of buying the rumor, selling the fact,” said Bargmann.
“So when we see the headlines come out, everyone is already expecting more, even though there’s very little more they can actually say. The rhetoric has been quite aggressive. But now we need to see some action,” he added.
The dollar extended its losses against the yen after opposition Democratic Party lawmaker Keisuke Tsumura said he could not support Iwata, the government’s BOJ deputy governor nominee because the Iwata wants to revise the law governing the central bank’s independence.
The ruling Liberal Democratic Party holds a majority in the lower house of parliament, but does not have a majority in the upper house. The opposition Democrats could potentially hold the decisive votes for nominees in that chamber.
The dollar extended its losses against the yen following Tsumura’s comments, as they stirred some concern over whether Iwata, an advocate of aggressive monetary easing, would be approved by parliament.
Traders, however, said Iwata could still win parliamentary approval even if the Democratic Party of Japan (DPJ) were to oppose him, as long as other opposition parties join the ruling Liberal Democratic Party (LDP) to approve his nomination.
“Apparently…the DPJ can’t block it if the small opposition parties vote with the LDP,” said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
Gareth Berry, G10 FX strategist at UBS in Singapore also noted that it was unclear whether Tsumura’s view reflects the stance of the opposition DPJ as a whole.
“It’s not clear yet if that is the view of his party, but it seems like an isolated comment from a single official at this stage,” Berry said.
“Let’s see how things pan out… The key thing is Kuroda looks like he has DPJ support,” he said, referring to Haruhiko Kuroda, the government’s nominee for Bank of Japan governor to replace Masaaki Shirakawa, who steps down later in March.
Elsewhere, the Australian dollar rose 0.4 percent to $1.0244, getting a lift after the Reserve Bank of Australia (RBA) kept interest rates unchanged at a record low of 3.0 percent as expected.
The Aussie dollar edged higher after the interest rate decision as the market had seen a slender chance of an interest rate cut by the RBA.
The euro edged up 0.1 percent to $1.3042, staying above Friday’s low of $1.2966, its lowest level in almost three months.
The euro has been weighed down by political uncertainty in Italy and weak economic indicators, which have stirred some speculation that the European Central Bank might cut interest rates sooner than previously thought.
One factor that could support the single currency in the near term is market positioning, said a trader for a Japanese brokerage house in Tokyo.
“If you look at the IMM positions…there has been a shift to a short position from what had been a significant long position,” the trader said, adding that the euro could gain some support if traders pare back their euro bearish bets.
Data released last week showed that currency speculators on the International Monetary Market (IMM) flipped to a net short position in the euro in the week ended February 26 for the first time since early January.
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