Asia shares, euro rise on firm PMI

File photo: AFP

File photo: AFP

Published Dec 3, 2012

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Tokyo - Asian shares and the euro rose on Monday as further signs of a stabilising Chinese economy boosted investor risk appetite, but gains were capped by worries that an impasse in U.S. budget talks could tip the world's largest economy into recession.

European shares will likely track Asian shares higher, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open up as much as 0.5 percent. A 0.2 percent rise in U.S. stock futures also hinted at a firm Wall Street open.

The euro hit a six-week high against the dollar at $1.3048 on an upbeat Chinese manufacturing survey, and jumped over 0.7 percent to a one-month high versus the Australian dollar to around A$1.2528.

The pace of activity in China's vast manufacturing sector quickened for the first time in 13 months in November, with the final reading for the HSBC Purchasing Managers' Survey (PMI) rising to 50.5 in November, further evidence that the economy is reviving after seven quarters of slowing growth.

“There is growing confidence that China's economy bottomed in July-September, with signs of firmer external demand,” said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

“Sentiment is supported because the gradual recovery in Asian economies comes against the backdrop of low interest rates environment, which won't be changed anytime soon, so the recovery in risk appetite is likely to extend into next year,” he said.

Australia's sluggish retail sales, labour demand and tame inflation raised expectations the Reserve Bank of Australia may cut interest rates at its meeting on Tuesday, lifting local shares 0.57 percent to a five-week high earlier.

Japan's Nikkei stock average added 0.5 percent after reaching a fresh seven-month high earlier.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1 percent after climbing as much as 0.4 percent earlier to a fresh nine-month high.

Hong Kong shares eased 0.2 percent after reaching intra-day highs on the year earlier. Shanghai shares fell 0.3 percent, approaching their lowest in nearly four years hit last week. Indian shares earlier rose to 19-month highs but gave up gains to inch down 0.3 percent.

The HSBC manufacturing Purchasing Managers' Index (PMI) showed India's manufacturing grew at its fastest pace in five months in November, boosted by strong export orders and a surge in output.

“The storm might have abated a little, but the outlook for equities in 2013 remains choppy,” said HSBC's head of global equity strategy, Garry Evans in a research note.

“We conclude, however, that the global stocks will make modest gains in 2013, thanks to a combination of central bank action, earnings growth of about 10 percent, and some further rerating as investors slowly regain confidence in equities.”

ANXIETY GAUGE MIXED

Oil prices were underpinned by the firm Chinese data, tensions in the Middle East, involving Israel and Palestine, political unrest in Egypt and the conflict in Syria.

U.S. crude futures rose 0.3 percent to $89.14 a barrel and Brent added 0.4 percent to $111.63, while London copper gained 0.3 percent to $8,014.75 a tonne.

Investors will now look at U.S. and European manufacturing reports due later in the session for clues about the global growth trend.

Uncertainty over whether Washington can avert the “fiscal cliff”, $600 billion worth of tax increases and spending cuts that will be automatically triggered in early 2013 unless Democrats and Republicans agree how to cut the deficit, kept investors nervous.

That uncertainty underpinned gold's appeal as a safe-haven as spot gold edged up 0.3 percent to $1,719.34 an ounce.

“People are more cautious because there is no clear sign when the fiscal cliff will be solved,” said Brian Lan, Managing Director of GoldSilver Central Pte in Singapore.

The Euro STOXX 50 Volatility Index, Europe's widely-used measure of investor risk aversion, fell on Friday to lows unseen since mid-2007, while the CBOE Volatility Index , which reflects anxiety in the Standard & Poor's 500 index, jumped 5.4 percent.

The euro's limited drop on Friday after Moody's cut the credit ratings on the European Stability Mechanism and the European Financial Stability Fund, may hint at its resilience.

Later on Monday, ahead of a meeting of euro zone finance ministers, Greece plans to unveil details of a bond buy-back crucial to efforts by foreign lenders to trim the country's ballooning debt, hoping the terms will draw enough investors and unblock vital aid.

The dollar was down 0.1 percent against the yen at 82.26 , but not far from a 7-1/2-month high of 82.84 yen touched on Nov. 22.

Currency speculators in the latest week boosted short yen positions to the highest in more than five years, on expecation's that an election on Dec. 16 will usher in a new government that will press the central bank to aggressively ease monetary policy.

Defying rising equities, Asian credit markets were subdued, with the spreads on the iTraxx Asia ex-Japan investment-grade index little changed from Friday. -Reuters

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