Singapore: Asian stocks edged up after an early fall while the dollar kept a tenuous grip on overnight gains in Asia on Tuesday ahead of US elections and a Federal Reserve meeting that is expected to ease monetary policy.
European markets opened a tad weaker after rising for three consecutive sessions.
The Australian dollar leapt after Australia’s central bank surprised markets and raised interest rates as a pre-emptive strike against inflation.
The MSCI index of Asia Pacific stocks outside of Japan recovered after early falls to rise 0.4% on gains in energy and materials and Hong Kong’s Hang Seng Index was also up after Chinese banks extended gains.
Japan’s Nikkei share average closed up 0.1% after touching a seven-week low though the broader-based Topix index shed 0.02% to a 19-month closing low, under pressure from the yen’s strength as it hovers close to a record high against the dollar.
They are down 13% and 12% so far this year, respectively.
Analysts said the Topix has been hit particularly hard by a downbeat performance in the banking sector, on worries about stricter global banking regulations, and by a series of equity financings.
“The market is of course cautious until it sees the outcome of the Fed meeting and the US election, but Japanese stocks are being pressured more by selling from real money investors,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.
“Japanese banking shares are also pressured by Basel, as they are part of the global banking sector. With uncertainty over the outlook for European banking shares remaining, it may be inevitable that those shares are taken out of portfolios.”
Under new global banking regulations proposed last month, known as “Basel III,” banks will be required to hold top-quality capital worth at least 7% of their risk-bearing assets -- more than three times current requirements.
The dollar gave up some overnight gains in ranges that tightened ahead of the Fed’s policy meeting where it is widely expected to announce a second round of monetary easing.
Markets generally have priced in for the central bank to commit to buying at least $500 billion in Treasury debt over the coming months to spur a flagging economy. The Fed is also expected to announce a programme of large-scale asset purchases.
The Fed will announce the outcome on Wednesday.
The dollar edged up to ¥80.56 though it remained within sight of a record low of ¥79.75 set in 1995. Markets were keeping a wary eye on the pair, with the risk of Japanese intervention seen mounting if the dollar slips below ¥80.
“The market is turning cautious ahead of the Fed’s meeting. As the market position has been overwhelmingly short in the dollar, the psychology at work here is that you should unwind your position,” said a trader at a Japanese bank.
The Australian dollar surged 1.1% on the day after the central bank raised interest rates by 25 basis points to 4.75%.
Most investors had expected the Reserve Bank of Australia to hold rates steady at 4.5% after last week’s benign inflation report. The Australian dollar rallied as far as $0.9981, from $0.9885 before the rate decision was announced.
India’s central bank raised interest rates for the sixth time this year to tame inflation, and indicated that the increase was likely to be its last in the near term. The Reserve Bank of India (RBI) raised its lending and borrowing rates by 25 basis points each, as expected by most analysts.
Gold ticked up after a drop from a two-week high spurred bargain hunting, but investors were reluctant to make big bets ahead of the Federal Reserve’s policy meeting, which could determine the fate of the dollar.
Gold was up $5.1 to $1,355.35 by 10:34am, after hitting a two-week high at $1,365.49 in Asia on Monday. Gold struck a record around $1,387 last month.
Oil also edged higher with investors cautious ahead of the expected monetary easing from the US Federal Reserve, capping gains from Saudi Arabia’s upward shift in price tolerance.
US crude for December rose 12 cents to $83.07 a barrel at 8:18am, while ICE Brent nudged two cents higher to $84.64.
The Fed’s pending announcement overshadowed comments from Saudi’s Oil Minister Ali al-Naimi on Monday that consumers would be comfortable with oil prices rising as high as $90 a barrel.