Asian shares ease as growth fears persist
Asian shares fell on Monday and the safe-haven dollar rose as concerns about faltering global growth and Europe’s intractable debt crisis continued to sap investor confidence, but commodities steadied after a pummelling last week.
The euro also fell, despite moves late last week to ease funding strains on the euro zone banking system, as markets remained unconvinced that a European Union summit on June 28-29 will make substantial progress towards resolving the crisis.
“On the European side, you have concerns about the summit. It’s not as if they have not had the repeated chances to get together to talk about this,” said Nicholas Smith, Japan strategist at CLSA.
MSCI’s broadest index of Asia Pacific shares outside Japan fell 0.8%, with South Korean shares losing more than 1.5% as index heavyweight Samsung Electronics tumbled as much as 4% after brokers cut their second quarter profit outlook for the firm.
Growth-sensitive sectors were hardest hit, with the MSCI index’s tech, energy and material sub-index all shedding more than 1%, while only the defensive telecoms and utilities sectors gained ground.
Tokyo’s Nikkei share average held up better than most regional markets, as a weaker yen supported Japan’s exporters, but was still down 0.1% after starting the day in positive territory.
US stocks had rebounded more than 0.5% on Friday, but Wall Street index futures were trading down around 0.5% in Asia, suggesting the gains may be short-lived.
Investors worry that Europe’s debt crisis is adding to the slowdown in global economic growth, especially after a flurry of data last Thursday showing weakness in global manufacturing.
SUMMIT TO TALK ABOUT
The euro slipped around 0.2% to about USD 1.2535, while the dollar rose around 0.1% against a basket of major currencies.
Analysts at Barclays Capital expect the summit will yield more strong rhetoric in support of a roadmap towards tighter fiscal integration, rather than a definitive solution.
“This may disappoint markets to some extent. We prefer remaining long USD over the week especially against European currencies,” they wrote in a note.
The European Central Bank is to start accepting a wider range of collateral in its lending operations and assets of a lower quality, it said on Friday, its second such move in six months to neutralise growing funding pressures on struggling banks.
But investors remain fearful that the crisis is spreading to the euro zone’s bigger “peripheral” economies.
Both Spain and Italy are finding it increasingly hard to finance themselves in bond markets and still have a lot of money to raise to meet their funding requirements.
Italy’s 10-year government bond yields are currently around at 5.8% with equivalent Spanish debt at 6.55%. Their Treasuries will both be hoping that European leaders do enough to encourage buyers.
“The success of the summit can probably best be measured by whether it achieves a meaningful and lasting decline in Spain’s bond yields,” Ric Spooner, chief market analyst at CMC Markets in Sydney, said in a note.
Commodities, which fell sharply last week on global growth fears, were firmer on Monday, with Brent crude oil gaining 10 cents to clamber back above USD 91 a barrel and copper bouncing 1% to around USD 7,383 a tonne.
Brent crude had fallen nearly 7% last week, while copper lost more than 2.5%.
Gold, which lost nearly 3.5% last week amid fears developed economies could be sliding towards deflation, firmed a touch to around USD 1,573.50 an ounce.
But other assets linked to expected demand for commodities remained under pressure, with mining stocks such as BHP Billiton and Rio Tinto falling and the Australian dollar easing 0.3% to around USD 1.0020.