Hong Kong: Asian shares were poised for their first weekly losses in a month, as investors took profits after a recent rally while a pick-up in inflationary pressures sent gold racing to yet another record high on Friday.
Financial markets braced for another round of policy tightening from Beijing, possibly as early as this weekend, after fresh data showed consumer price inflation accelerating to 5.4% in the year to March, the fastest since July 2008 and topping market forecasts.
Asian central banks have resorted to various measures to tighten policy with some like Singapore sanctioning an increase in the value of their currency to keep prices in check.
“The weakness in markets this week is expected after the smart comeback we have seen recently with inflationary concerns again coming to the forefront,” said Jan Lambregts, global head of financial markets research at Rabobank.
An inflationary scare in the opening weeks of 2011 saw a widespread selloff across emerging markets but markets have staged a smart comeback since then as policymakers have taken various steps to rein in price pressures.
Even the triple natural disaster in Japan has proved to be a speed bump for investors.
While the Nikkei remains more than 7% below its pre-quake levels, the MSCI index of Asian stocks outside Japan has gained around 8% since the disaster.
On Friday, stock markets in Australia , Japan and South Korea slipped, with shares in Seoul weakening after hitting a fresh closing high the previous session.
The Nikkei was down 0.4%. Japanese equity funds had minor outflows of $8.7 million, breaking their inflow streak of nine straight weeks, according to Thomson Reuters Lipper data.
Outside Japan, stocks were down 0.2% Friday and were set to weaken for the week after hitting a three-year high on Monday as fund inflows slowed.
Emerging markets pulled in a net $1.2 billion in the week ending April 13 with the iShares MSCI Emerging Market equity fund pulling in a net $595 million, down from the prior week’s inflow of $1.6 billion.
As price pressures showed signs of picking up, gold considered as an inflation hedge, jumped to yet another record high, nearing the $1,480 per ounce mark, dragging silver along with it to 31-year highs.
“We see gold peaking at $1,500 an ounce. We think there could be some more upside in gold in the short term, especially in this environment of high inflation and rising oil prices,” said Natalie Robertson, commodities strategist at ANZ.
Gold’s rally of nearly 13% from the January lows has also been fuelled by the weakening dollar.
The dollar wallowed at a 16-month trough against a basket of currencies as the market realised that there is scant chance of the Fed tightening for some time to come given the focus on unemployment rather than on inflation [ID:nFEDAHEAD]
Preying on the dollar’s outlook has also been a rash of growth downgrades which has also prompted investors to take profits in US stocks after recent gains.
A Reuters poll of economists showed 2011 gross domestic product forecasts fell to 2.9% from 3.1%.
Other commodities shone too.
Oil saw a solid start with Brent crude up nearly half a% to $122.45. Grains and copper prices firmed too, with the broader Reuters-Jefferies commodities index flirting near record highs hit on Monday.
In the bond markets, ten-year US notes crawled in a tight band before inflation data due later in the day.