Singapore: Asian stocks rebounded on Monday after Dubai said it had received $10 billion from Abu Dhabi to repay debt, which pushed down the yen and boosted the euro and emerging Asian currencies as risk appetite improved.
The dollar shot up to 88.90 yen after the Dubai statement from around 88.50 yen, but failed to sustain that bounce as Japanese exporters sold the greenback, according to traders.
“It’s all about risk appetite,” said Sean Callow, currency strategist at Westpac Banking Corp.
“If Dubai doesn’t default and thus there is no ripple through markets to its creditors as was feared in late November, then riskier assets and currencies can perform better and safe havens such as yen, dollar and CHF (Swiss franc) will be sold in knee jerk fashion.”
Dubai said it had received $10 billion from Abu Dhabi to help it repay $4.1 billion in an Islamic bond maturing on Monday, easing fears of a potential debt default that had rattled global markets.
Emerging Asian currencies, such as the South Korean won and Indian rupee, firmed against the dollar, taking their cue from the firmer euro.
After losing almost 1% in early trade, the MSCI index of Asia Pacific stocks outside Japan reversed course following the Dubai announcement to gain about 0.3%.
Shanghai stocks jumped 1.7% while Hong Kong gained half as much, led by banks and refiners.
Shares in Australia, Korea and Taiwan all rose less than half a percent, while India and Singapore fell slightly.
Japan’s Nikkei average also erased earlier losses to end flat.
Kajima Corp. and other construction firms turned positive after the Dubai news, but recent gainers such as Toyota Motor Corp. lost steam and weighed on the benchmark index, which had rallied 2.5% on Friday.
Construction firms had been under pressure earlier after the Nikkei business daily said the Dubai government and its affiliated firms owe non-financial Japanese companies, including construction firms, roughly $7.5 billion in credit that had not been collected as of 31 October.
“The market welcomed the news about the rescue of Dubai for now, keeping the Nikkei above 10,000,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities. “But what’s more critical for the market going forward will still be currency moves and the government’s economic steps.”
CDS tighten, gold rises
Asian credit default swaps tightened after the Dubai news.
Asia ex-Japan iTraxx investment-grade index tightened 2-3 basis points to 98/100 bps, with South Korea CDS narrowing slightly to 88 bps and the Philippines by 2 bps to 165/175 bps.
As the dollar fell, gold gained steam and rose a percent to around 1,125 per ounce, moving away from four-week lows hit on Friday, but still more than $100 below a record high struck on Dec. 3.
Wall Street stocks mostly rose on Friday after US retail sales posted the largest advance since August last month, while consumer sentiment improved sharply in December.
Most analysts expect the dollar’s weakness to continue because the US Federal Reserve is expected to keep interest rates near longer than other major central banks, suggesting the dollar will remain a funding currency for carry trades.
The dollar index shed about a third of a percent, pulling away from a six-week high hit Friday on views the Fed might raise rates sooner than expected.
US crude futures fell as much as $1 to below $69 a barrel, pressured by concerns over weak fuel demand and brimming inventories.
Analysts who watch past price moves for future direction have been saying that the move below $70 for US crude could trigger further losses since there is little strong technical support until $65 a barrel.
“The losing streak culminating on Friday has been the longest one since a nine-day slide in July 2001, and has also turned the chart patterns distinctly negative,” said Edward Meir, analyst at MF Global.
“The question now becomes where we head from here, and from the looks of things, we suspect there is more downside to go.”
If the US crude contract settles down on Monday, that would match the nine-day losing streak in July 2001. Crude is up from below $33 in December 2008, but is still less than half its record high of more than $147 struck in July 2008.