Tokyo: Asian shares steadied in quiet pre-holiday trade after a slump late last week, but markets have become more jittery about the risk of the United States failing to avert a fiscal crisis.
Activity in other assets was also subdued, with spot gold steadying as investors took to the sidelines, while oil extended losses, with US crude inching down 0.2% to remain below $89 a barrel while Brent futures also eased 0.2% to $108.78.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.07% after falling to a near two-week low on Friday when House of Representatives Speak John Boehner failed to gain support for a tax plan, raising fears the US may not be able to avert the “fiscal cliff” of automatic spending cuts and tax increases set to start 1 January.
The White House on Friday tried to rescue stalled talks but there was little headway as lawmakers and President Barack Obama abandoned Washington for Christmas.
Many market players still expect both sides to reach a compromise before the year-end deadline but heightening tensions were likely to stifle trade already slowed by the holidays.
US Treasuries gained a safety bid on Friday from fiscal cliff worries, which put many investors on edge and drove down global equities markets, the euro and oil futures.
Australian shares were up 0.2% but trade was extremely thin, with Monday’s session shortened ahead of the two-day Christmas holiday and many players already away.
South Korean shares edged up 0.1% in light trading before Christmas Day, with the weakening Japanese yen and US fiscal uncertainty keeping investors uneasy.
“With a dearth of good news, shares will undergo corrections in the final week of this year, albeit within a limited range” said Park Hyeong-joong, an analyst at Meritz Securities.
“A chance is growing that the US fiscal issue will not be resolved by this year-end,” Park said.
Japanese financial markets are closed for a public holiday and will resume trading on Tuesday.
The dollar inched up 0.2% to ¥84.38, having fallen below ¥84 on Friday. The dollar hit a 20-month high of ¥84.62 on 19 December.
The yen has been pressured by expectations the Bank of Japan will be compelled to adopt more drastic monetary stimulus measures next year as incoming prime minister Shinzo Abe has demanded bolder action by the central bank to bring Japan out of decades-long deflation.
Abe stepped up pressure over the weekend, saying on Japanese television on Sunday that he will try to revise a law guaranteeing the BOJ’s independence if his demand for a binding inflation target is not met.
Currency speculators increased their bets against the US dollar in the latest week, according to data from the Commodity Futures Trading Commission released on Friday. Bets against the yen fell after reaching a more than five-year peak.
But market players generally see the dollar staying firm for now as a US fiscal impasse will likely continue to sap investor appetite for risky assets and raise the dollar’s safe-haven appeal.
“It looks like all momentum for the fiscal cliff negotiations is gone,” said Rob Ryan, strategist for RBS in Singapore. While the dollar could sway by year-end flows, “on balance I would see a stronger US dollar into the end of the year,” Ryan said.
EPFR Global, a fund-tracking firm, said on Friday that investors around the world pulled $4.1 billion from bond funds worldwide during the week ending 19 December, the most since August 2011, and favoured riskier stock exchange-traded funds despite the US budget worry.
ETFs are generally believed to represent the behavior of institutional investors, and can be used opportunistically to bet on various indexes.
The euro stood steady around $1.3180.
In Italy, Mario Monti announced on Sunday he would consider seeking a second term as Italian prime minister if approached by allies committed to backing his austere brand of reforms. Monti resigned on Friday but has faced growing calls to seek a second term at a parliamentary election on 24-25 February.
At stake is the leadership of the world’s eighth largest economy, where recession and public debt of more than 2 trillion ($2.6 billion) have aggravated investor concerns about growth and stability in the euro zone.
Italy faces a huge bond redemption in the first quarter of 2013 and its failure to secure funding could refuel concerns about sovereign financing not only in Italy but also similarly indebted Spain, hurting sentiment towards the euro. Reuters