Asia markets cautious as Tokyo’s winning run ends

Dollar rises as US data fuels talk of rate hike

HONG KONG, July 20, (AFP): Japanese stocks finally fell Wednesday after six straight days of gains, and most other Asian markets moved cautiously following weak leads from New York and Europe and a cut in the IMF’s world growth forecast.

The Nikkei in Tokyo had surged more than 10 percent during its rally — fuelled by hopes for stimulus measures as well as a weaker yen — and investors decided it was time to cash in. The index ended down 0.3 percent. While the Dow on Wall Street closed at another record, the broad lead from Europe and New York was tepid after the International Monetary Fund lopped 0.1 percentage point off its outlook for the global economy for both this year and next.

The Fund pointed to last month’s shock vote for Britain to leave the European Union, saying it had darkened the skies in that country and across the euro area and dented an already fragile recovery.

It also downgraded its 2016 growth estimate for the British economy by 0.2 percentage points, putting renewed pressure on sterling, which eased to $1.3087 in Asia and back towards the three-decade lows hit after the June 23 vote.

Adding to the downbeat mood in Europe, a key survey showed Tuesday that investor confidence in Germany fell to its lowest level in nearly four years in July on concerns about the Brexit fallout.

Asian markets moved more cautiously than they have in the past week, although confidence that central banks will introduce more monetary easing measures is providing some support.

Hong Kong added one percent, having fallen Tuesday for the first time after a six-session winning streak.

Sydney ended up 0.7 percent but Shanghai shed 0.3 percent and Seoul was 0.1 percent lower.

In early European trade London rose 0.4 percent, Frankfurt added 0.7 percent and Paris put on 0.6 percent.

“The rally is losing some momentum as the (corporate) reporting season heats up,” said Niv Dagan, executive director at Peak Asset Management LLC in Melbourne.

“We’re staying cautious and taking a little bit of profit off the table. With the equity rebound stalling, we are really looking for positive momentum from the reporting season” for the next leg-up in stock markets, he told Bloomberg News.

However, Stephen Innes, senior trader at OANDA Asia Pacific, said the upward momentum would likely continue as dealers await central bank moves.

Support

“Post-Brexit speculation of easy money continues to support equity markets. The availability of easy money is showing little sign of abating... and risk sentiment should remain buoyant for the foreseeable future,” he said in a note.

Speculation that Japan’s government and central bank will step up their stimulus drive — along with expectations of a US interest rate rise this year — is keeping pressure on the yen.

In the afternoon the dollar bought 106.40 yen, up from 106.08 yen in New York and well above the 100 yen levels touched just two week ago.

The Turkish lira plunged two percent as traders fretted over a government crackdown following the weekend’s failed coup, while the central bank cut interest rates. The country has been thrown into turmoil by the deadly events and the resulting purges have fuelled uncertainty.

Ratings agency Moody’s said it would “assess the medium-term impact” of the crisis before deciding whether to lower Ankara’s credit rating.

Hong Kong stocks resumed their rally Wednesday, marking a seventh gain in eight days, tracking another Wall Street record and with traders betting on fresh global central bank stimulus.

The Hang Seng Index climbed 0.97 percent, or 209.28 points, to end at 21,882.48.

Pedestrians are reflected on the stock price quotation board in Tokyo on July 19. Tokyo’s benchmark Nikkei 225 index surged 1.37 percent, or 225.46 points, closing the day at 16,723.31, while the broader Topix index of all first-section

shares gained 1.08 percent, or 14.29 points, to finish at 1,331.39. (AFP)

The benchmark Shanghai Composite Index fell 0.29 percent, or 8.70 points, to 3,027.90 while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, rose 0.07 percent, or 1.40 points, to 2,035.85 on turnover of 333.9 billion yuan.

Meanwhile, the dollar broadly rose Wednesday as another positive round of US data fanned speculation the Federal Reserve will lift interest rates, while central banks elsewhere consider stimulus measures to kickstart growth.

A decision by the International Monetary Fund to cut its global growth projections for this year and next also lifted the greenback against higher risk units as dealers sought out safety.

New home construction in the US rose in June at its best pace in nine months, official data showed Tuesday.

The figures are the latest to indicate the world’s top economy is getting on to a sure footing following a blockbuster jobs creation report at the start of the month and news that retail sales had picked up.

The greenback has soared since the jobs data, which came as central banks and leaders from — among others — Japan, Britain and Europe indicate they will loosen monetary policy to negate the effects of Britain’s shock vote to leave the EU.

On Tuesday the new finance minister in London Philip Hammond said the Bank of England must act to stimulate the economy. While the BoE this month held off cutting rates, it did say it would likely announce a reduction in August.

In Asian trade the pound fell to $1.3079 from $1.3101, having sat around $1.3250 at the start of the week. The British unit is heading back towards the 31-year lows below $1.28 touched in the weeks after the June 23 Brexit vote.

Fetched

The euro fetched $1.1006, down from $1.1023.

The dollar also rallied against higher-yielding currencies, with South Korea’s won down 0.4 percent, the Indian rupee losing 0.1 percent and Indonesia’s rupiah also 0.1 percent lower.

The Turkish lira plunged 2.5 percent as traders fret over a government crackdown following the weekend’s failed coup attempt. The country has been thrown into turmoil by the deadly events and the resulting purges have fuelled uncertainty.

Ratings agency Moody’s said it would “assess the medium-term impact” of the crisis before deciding on whether to lower Ankara’s credit

rating. An interest rate cut by the central bank added extra pressure to the lira.

The dollar was almost unmoved at 106.05 yen against 106.08 yen but analysts said the outlook was strong for the greenback if the Bank of Japan decides to add to its already massive monetary stimulus at next week’s policy meeting. The greenback is up about six percent against the yen this month.

Stephen Innes, senior trader at OANDA Asia Pacific, said in a note: “An overwhelming percentage of investors are expecting Japanese policymakers to deliver, which should make the topside on (the dollar/yen) the favoured short-term position.”

However, if the BoJ makes no announcement, the dollar may drop more than three percent, according to a Citigroup global FX survey, Bloomberg News reported.