Ian Chua / Reuters
Hong Kong: Asian stocks mostly recovered from an early sell-off on Thursday, 6 September, in a volatile session that saw the yen rise then retreat as worries about the health of the US economy were offset by upbeat local economic data.
European stocks were seen bouncing back from Wednesday’s fall, with financial bookmakers expecting Britain’s FTSE 100 to open up to 44 points higher, following a 1.7% drop in the previous session.
The yen lost traction as stocks regained their footing, while expectations that US gasoline and crude inventories fell last week helped push US crude to a month high above $76 a barrel.
Worries about the world’s biggest economy flared up overnight after reports showed pending sales of existing US homes fell 12.2% in July as problems in the subprime market spread, and private employers hired the fewest workers in more than four years in August.
“The news out of the credit market continues to be very ugly so, while you’ve got that, markets are going to continue to be very volatile,” said Tim Rocks, equity strategist at Macquarie Securities in Hong Kong.
“But over the last couple of weeks, Asia has rebounded quite strongly and that makes a lot of sense to us because we’re convinced that the fundamentals are so strong here that they’d be able to withstand some weakness in the US.”
Underscoring those solid fundamentals, data on Thursday showed Australian employment surged in August, while South Korea’s consumer sentiment index hit a near five-year high in the same month.
After falling as much as 0.7%, MSCI’s measure of Asia Pacific stocks excluding Japan rose 0.3% by 0623 GMT, while Tokyo’s Nikkei ended up 0.6%, reversing early losses.
The MSCI index has risen nearly 19 percent from a five-month trough hit on 17 August and is now down just 6% from the life high set on 24 July.
Investors bought firms exposed to domestic demand such as South Korean retailer Lotte Shopping, sending the stock up 4.7%. UBS also upgraded its recommendation for the share to buy, citing improving consumer demand.
Steel makers were also in favour with Nippon Steel rising 1.8% after it raised its full-year net profit forecast by 4%, while South Korea’s Posco rallied 4.4%. But bank stocks fell in line with their US peers after the Wall Street Journal said Citigroup Inc and other banks could find themselves burdened with affiliated investment vehicles that issue tens of billions of dollars in short-term debt.
Among the major markets, South Korea’s KOSPI and Taiwan’s TAIEX both ended 1.2% higher, Singapore put on 0.5% and India gained 0.6%.
Yen loses steam
As stocks reversed direction, the yen pared initial gains with the dollar climbing towards 115.40 yen, after earlier plumbing a near one-week low near 114.80 yen.
Also off the session low, the euro popped briefly above 157.50 yen from about 156.70 yen. Against the dollar, the single currency held on to most of the overnight gains, trading at around $1.3644.
“The main reason the yen declined through the 115 level is because of the stock market. But the market is unstable, and high volatility is likely to remain,” said Tohru Sasaki, chief forex strategist for Japan at JPMorgan Chase.
The low-yielding yen has been widely used as a cheap source of funds to buy higher-yielding currencies in carry trades, and market players have used the performance of stock markets as a barometer of whether to hold or cut back on those positions.
With stocks regaining favour, safe-haven Japanese government bonds also lost ground. The yield on the benchmark 10-year bond edged back to 1.615 percent from a low of 1.580 percent.
Among commodity prices, spot gold rose above $683 an ounce to fresh six-week highs, while US crude added 45 cents to $76.18 a barrel after earlier reaching $76.26 — a level last seen on 3 August.
The focus is now on interest rate decisions by the European Central Bank (ECB) and Bank of England due later on Thursday, although expectations are for both central banks to leave rates unchanged.
The Federal Reserve reassured investors that while market turbulence has noticeably hurt US housing activity in recent weeks, it had little effect on other sectors of the US economy so far.
Still, turmoil in credit and mortgage markets that had persisted for months is “far from over”, a senior US Treasury Department official told Congress on Wednesday, while Moody’s Investors Service said it could last well into 2008.