Asian shares slide to 2-1/2 month low

File picture: Alex Grimm

File picture: Alex Grimm

Published Dec 12, 2013

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Tokyo - Asian shares stumbled to a 2-1/2 month low on Thursday on heightened expectations the Federal Reserve may act sooner than later to unwind its stimulus after a provisional budget deal in Washington eased some of the fiscal drag on the US economy.

Emerging Asian currencies also came under pressure, with Indonesia's rupiah falling to match a near five-year low set last week.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.7 percent after earlier hitting an intraday low not seen since October 1.

The decline added to Wednesday's 1.1 percent slide, its sharpest one-day fall in three weeks.

In Tokyo, the benchmark Nikkei lost 1.1 percent, extending declines into a third day.

Still, the index, powered by Tokyo's aggressive fiscal and monetary stimulus, has rallied nearly 48 percent so far this year, on track for its best yearly gain since 1972.

Downbeat sentiment was expected to carry over to European trade, with financial bookmakers expecting London's FTSE 100, Frankfurt's DAX and Paris's CAC 40 to open down as much as 0.7 percent.

Overnight, US stocks posted their biggest drop in a month, with the Standard & Poor's 500 down 1.1 percent, as traders locked in recent gains after Congress announced the provisional budget deal.

S&P 500 E-mini futures edged down 0.1 percent in Asian trade on Thursday.

The bipartisan budget agreement reached late on Tuesday, though modest in spending cuts, would end three years of political squabbling in Washington that climaxed in October with a two-week partial government shutdown.

The US House of Representatives could vote on the deal on Friday.

In September, the Fed cited the possibility of a hit to the economy if lawmakers did not agree on a budget as one reason to keep up its $85 billion-a-month bond-buying campaign.

“Following Friday's employment report, we noted that the odds of tapering at the January FOMC meeting (vs. March) had shifted from less than even to roughly even,” Societe Generale said in a note.

“In light of the budget deal agreed by Congressional dealers in recent days, the odds have shifted further and we now see the January meeting as the most likely timeframe.”

Market participants will also be keeping an eye out for the possibility of a surprise move by the Fed next week at its final policy meeting for 2013 on December 17 and 18.

EURO ON THE UP

The dollar was up 0.2 percent at 102.59 yen, having fallen 0.4 percent overnight, easing for a second session after a recent strong run against the Japanese yen.

The euro added 0.1 percent to $1.3796, heading for an eighth straight session of gains against the dollar, following higher money market rates and diminishing expectations of any imminent easing by the European Central Bank.

The single currency was also not far from a near one-year high of $1.3833 set in October.

Some analysts see little value in the euro after its recent strong run, however.

“We entered a short EUR/USD recommendation Wednesday, targeting a move down to 1.32 with our stop set at 1.3975,” analysts at BNP Paribas wrote in a note.

The Australian dollar eased 0.2 percent to $0.9029, within sight of a three-month low of $0.8989 touched on Friday and giving up an earlier rebound after a surprisingly strong jobs report.

Concerns over US tapering also weighed on emerging Asian currencies.

The Indonesian rupiah fell 0.4 percent to 12,030 per dollar after earlier touching 12,035, matching a near five-year low set on December 5.

The decline came ahead of an interest rate decision by the country's central bank later on Thursday.

GOLD LOSING LUSTRE?

Among commodities, US crude prices inched down 0.1 percent to about $97.35 a barrel, adding to a 1.1 percent slide in the previous day after data showed large builds in refined oil products.

Gold added 0.3 percent to around $1,255.5 an ounce, recouping some of Wednesday's 0.6 percent decline.

Still, gold is down 25 percent so far this year, on track for its worst yearly fall since 1981.

“The collapse in gold prices this year, the sharpest decline since 1981, is a clear indication that investors have started to discount a normalisation of the economy, interest rates and asset allocation,” Bank of America Merrill Lynch said in a note.

“This will continue next year, and we believe the 'last Great Rotation trade' will be a vigorous bull market in the US dollar.” - Reuters

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