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Asian shares reach new 16-month highs

Published: December 7, 2012 | 7:21 am
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TOKYO — Asian shares touched fresh 16-month highs on Friday as investors awaited US nonfarm payrolls data due later in the day, with sentiment underpinned by signs that China’s economy is stabilising.

European shares were expected to gain modestly, with financial spread betters predicting London’s FTSE 100, Paris’s CAC 40 and Frankfurt’s DAX to open as much as 0.4% higher. A 0.1% rise in US stock futures hinted at a steady Wall Street open.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, and was set for its third straight weekly gain with a 1.3% advance. The index has gained about 17% year-to-date, compared with a loss of nearly 18% last year.

Hong Kong shares reached a 16-month peak and have climbed 21% so far this year despite facing bouts of pressure from sputtering mainland Chinese markets. Shanghai shares jumped 1.2%.

“People were gloomier at this time last year, but now, judging from the flows, they seem to be very optimistic and positioning for policy changes next year in China,” said Larry Jiang, chief investment strategist at Guotai Junan International Securities.

Australian shares rose 0.9% to a six-week closing high, with top miners supported by rebounding iron ore prices.

Investors will focus on a slew of Chinese data due at the weekend, including industrial output, after recent manufacturing surveys pointed to a recovery from lows earlier this year.

“One of the reasons for the gains is better news we’ve seen from China and expectations the economy there has stabilised and growth has improved modestly,” CMC Markets chief market strategist Michael McCarthy said.

Despite some positive signs in the world’s second-largest economy, the Asian Development Bank slightly cut its 2012 and 2013 growth estimates for developing Asia on Friday as frail global demand continues to drag on the region.

Buoyed by strong domestic consumption and government spending, developing Asian economies have shown relatively more resilience compared with developed and more export-reliant economies such as Japan and south Korea.

South and Southeast Asian bourses have outperformed, with a 32% year-to-date surge in the Philippines, a 30% gain in Thailand, Indian shares rising 26% and Indonesia up 12% to date.

Japan’s Nikkei stock average was barely changed on Friday, hovering near seven-month highs hit on Thursday.

The dollar traded at ¥82.47, sticking close to a seven-and-a-half-month high of ¥82.84 hit on November 22.

US hope

As superstorm Sandy disrupted US economic activity, nonfarm payrolls in November are expected to have increased by only 93,000, compared with October’s gain of 171,000 jobs, a Reuters survey of economists showed. The unemployment rate is seen holding steady at 7.9%.

“A soft number should reinforce the case for the Fed doves ahead of next week’s FOMC (the Federal Reserve’s open markets committee) meeting where QE (quantitative easing) is likely to be increased in order to at least offset the expiration of Operation Twist. Hence a soft report should hurt the dollar and vice versa,” Sean Callow, senior currency strategist at Westpac bank in Sydney, said in a note.

At its December11-12 meeting, the Federal Reserve is expected to announce a new round of Treasury bond purchases to reinforce quantitative easing, replacing the expiring Operation Twist, under which it bought $45bn of longer-dated bonds a month while selling its shorter-date holdings.

With little to show after a month of posturing, the White House and Republicans in Congress dropped hints on Thursday that they had resumed low-level private talks on breaking the stalemate over the fiscal cliff.

Markets have been keeping up hope that Washington would eventually avert $600bn of tax hikes and spending cuts scheduled to start in January. Economists have warned that if Congress failed to reach an agreement, the US economy could slip back into recession, further weighing on the fragile global economy.

Euro on defensive

The euro steadied at about $1.2968. The euro slid nearly 1% to a one-week low of $1.2950 on Thursday in its biggest one-day loss in a month on prospects for interest rate cuts next year.

European Central Bank (ECB) president Mario Draghi said on Thursday policy makers had held a wide discussion on interest rates, including negative deposit rates, which means effectively charging depositors rather than paying them interest, with an aim of forcing banks to put their money to work elsewhere.

The ECB also projected gross domestic product next year could range from a contraction of 0.9% to growth of 0.3%, suggesting contraction is far more likely than not.

“It is unusual that a negative growth projection for the next year is offered before the end of the current year, but with such a view, markets are naturally pricing in a interest rate cut,” said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.

He expected the euro to remain vulnerable with the risk of falling back to $1.20 at some point, but the single currency appeared to be supported currently by year-end repatriation flows.

US crude futures inched up 0.4% to $86.58 a barrel and Brent rose 0.2% to $107.29.

A firm tone in broad assets soothed sentiment for Asian credit markets, narrowing the spreads on the iTraxx Asia ex-Japan investment-grade index by two basis points.


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