Asian shares on the defensive

Filomena Scalise

Filomena Scalise

Published Dec 6, 2013

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Sydney - Asian markets were heading into another trying session on Friday as speculation builds about an imminent scaling back in US stimulus, with payrolls data looming as make or break for a move this month.

Adding to the pain for Japanese stocks was a reversal in the dollar against the yen, and a negative for exporters. The Nikkei has shed 3.6 percent in the last two sessions and with futures trading at a discount a further drop was expected at the opening on Friday.

Given the index is still up 46 percent on the year so far, there would seem to be plenty of scope yet for profit-taking.

MSCI's broadest index of Asia-Pacific shares outside Japan was flat after slipping 1.5 percent on Thursday.

The lead from Wall Street was again less than helpful with the Dow Jones and the S&P 500 both ending down 0.43 percent.

That marked a fifth straight day of losses as investors fretted about the risk the Federal Reserve will begin to taper its monthly debt purchases of $85 billion at its policy meeting on December 17 and 18.

Crucial to that decision could be the payrolls report for November due later on Friday. The median forecast is for an increase of 180 000 in payrolls with the jobless rate steady at 7.2 percent.

The market would tend to see anything over 200 000 as greatly adding to the chance of a tapering this month, while a result under 150 000 would diminish the risk.

Still, it is worth remembering that total US employment is over 136 million so the difference in a monthly rise in jobs of 150 000 or 200 000 is statistically insignificant, yet it has the power to move markets massively.

Not helping was that Thursday's US data seemed strong on the surface but the detail was not so positive. While economic growth was revised up to an annualised 3.6 percent for the third quarter, all the increase came in a build up of inventories.

That led analysts to assume inventories would be run down this quarter and thus drag on growth.

Yet the headline number was enough to send yields on the benchmark 10-year US Treasury note up to a three-month high of 2.88 percent.

For once, the rise in yields did not lift the US dollar, in part because European yields jumped even more after European Central Bank President Mario Draghi sounded in no hurry to take further stimulative action.

In particular, the market was spooked when Draghi played down the need for another long-term liquidity operation (LTRO). Dealers had been hoping for just such an operation to ease a liquidity squeeze over year end.

As a result yields on two-year German government debt spiked to 21 basis points, from just 12 at the start of the week, and took the euro higher in their wake.

Early Friday, the single currency was up at $1.3671 having finally smashed through tough resistance at $1.3620. The next chart target was $1.3705/18, which would not be too distant from the 2013 peak of $1.3832.

Against the yen, it edged up to 139.14, but struggled to break above a five-year peak of 140.03 set earlier in the week. The dollar fared worse, dropping back to 101.71 yen and further away from the week's high of 103.37.

In commodities markets, spot gold was nursing losses at $1,224.69 after dropping 1 percent on Thursday.

US crude was up 4 cents at $97.42, still benefiting from a drop in US crude stocks. Going the other way, Brent crude fell 84 cents to $111.04. - Reuters

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