Singapore: Asian stocks slipped and commodities fell broadly on Thursday after the Federal Reserve disappointed some investors with only a limited expansion of monetary stimulus and a survey showed China’s vast factory sector slowed for an eighth month running.
The US central bank, as expected, extended its programme of selling short-term securities and buying longer-dated ones, a move aimed at driving down borrowing costs, but did not signal a more aggressive third round of quantitative easing.
MSCI’s broadest index of Asia Pacific shares outside Japan fell 1.4%, Brent crude oil slid to an 18-month low and the Australian dollar, sensitive to commodities demand, also lost ground.
Losses on some markets deepened after closely-watched data from China, where HSBC’s flash purchasing managers index showed the factory sector contracted for an eighth straight month in June, with export orders and prices at their weakest since early 2009.
European equity markets were expected to follow Asia lower, while US futures pointed to further weakening on Wall Street, were stocks ended slightly lower on Wednesday.
Japan’s Nikkei share average bucked the trend, rising 0.9% after the Fed restricted itself to extending “Operation Twist” to the end of the year weakened the yen against the dollar, which should help Japanese exporters.
“The fact they eased at all is a plus for the US economy, while holding off on QE3 is good for the Japanese market as it didn’t strengthen the yen,” said Hideyuki Ishiguro, assistant manager of investment strategy at Okasan Securities.
Spreadbetters called Europe’s major indexes to open down 0.3-0.5%, while S&P 500 index futures traded in Asia were down 0.5%.
The Fed also slashed its forecast for US economic growth, hitting commodities sensitive to expectations for industrial demand.
Data in recent weeks has painted a picture of a faltering recovery in the United States, while Europe’s debt crisis has been worsening remorselessly and even China, the chief motor of global growth in recent years, is slowing down.
Copper fell 1.5% to below $7,440 a tonne and oil also lost ground. US crude dropped 1.5% to $80.37 a barrel and Brent crude fell 0.7% to its lowest in 18 months, just above $92 a barrel.
“The US economy is not in good shape,” said Ken Hasegawa, a commodity sales manager at Newedge Japan.
“You add Europe and poor demand-supply situation, and the picture gets much worse. I can’t see any support for crude prices now, it’s all very bearish.”
The Australian dollar, sensitive to demand for Australia’s natural resources, particularly from top customer China, was down around 0.4% at about $1.0150.
QE3 down the line?
A Reuters poll showed Wall Street’s top bond firms still see a 50% chance of a third bout of quantitative easing or “QE3”, under which the Fed effectively creates money to fund large asset purchases, to stimulate the economy.
The liquidity boost delivered by such a move would be likely to increase money flows into riskier assets such as equities and commodities, while the monetary easing might also be expected to weaken the dollar.
“Clearly, the tilt is to do more. QE3 is one of those options,” said Julia Coronado, chief economist North America at BNP Paribas in New York.
Underlining the fragile state of global growth, the International Monetary Fund, in an umbrella report for the G20, warned of significant risks to the world economy from the European debt crisis and excessive fiscal tightening in some rich nations, urging collective action to lower unemployment.
The decision to hold off on QE3 supported the dollar against the euro and the yen, and also hit gold, which had been rising as investors betting on QE3 had bought the precious metal as a hedge against currency depreciation.
The euro was down 0.3% at around $1.2670 on Thursday, while gold eased to just above $1,600 an ounce.