Hong Kong: Asian shares gave up early gains on Friday, with interest rate speculation pressuring assets in South Korea and China, while a bounce in the British pound continued to depress the yen and oil hit a one-year high above $78.
European stock futures were up 0.4% and the euro hit a fresh 14-month high against the dollar at $1.4968, while US equity futures were 0.1% higher.
The yen which lost more than 1% in New York trade, continued to suffer from a rebound in sterling as a short-covering squeeze on Britain’s currency spilled into cross/yen pairs.
The squeeze was triggered by comments from Bank of England policy maker Paul Fisher that he felt more confident the bank’s quantitative easing programme was working well. The pound jumped to as high as 148.79, a three-week high, after rallying 3% on Thursday.
“An increasingly positive mood on the global economy has been supporting higher-yielding currencies. While the yen is not one of these currencies, it had been firming, and now we are seeing some correction,” said Ayako Sera, market strategist at Sumitomo Trust & Banking in Tokyo.
Upbeat US earnings reports on Thursday from financial giants Goldman Sachs and Citigroup bolstered hopes the US economy is picking up, along with results from tech stalwarts Google Inc and IBM, which reported earnings that exceeded already high expectations, showing demand from both consumers and businesses was returning.
Asian shares were initially buoyed by the earnings news, but succumbed to profit taking ahead of the weekend and on growing concerns that interest rates in parts of the region could rise sooner than expected, potentially dampening a corporate earnings recovery.
The MSCI index of Asia Pacific stocks traded outside Japan was down 0.3% by midafternoon, while the Thomson Reuters index of regional shares was off 0.2%.
Despite a late slide in tech stocks as traders took profits from a recent rally, Japan’s Nikkei index managed a 0.2% gain as the weak yen spurred shares of exporters including Sony Corp, which rose 1.9%.
Japan Airlines dove more than 11% on a Kyodo news report that the cash-strapped carrier was reconsidering plans to sell shares in its group firms.
Asian shares have been trading at 14-month highs this week and some analysts say share prices have raced up too far ahead of economic fundamentals, but opinions differ on whether they will continue climbing, consolidate around current levels or retreat. “There’s a growing risk of profit-taking on a sense that US shares may be overpriced ...,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities in Tokyo.
“Even so, the pace of economic recovery seems to be better than expected, as shown by strong US tech earnings, and global stock markets are trending upwards.”
INTEREST RATE JITTERS
Shanghai stocks slid more than 1% as investors were unnerved by comments from China’s central bank late on Thursday that its ultra-loose monetary policy would have a time limit.
Stocks in South Korea were also hit by interest rate fears and concerns that the won’s recent strength will undermine exporters’ sales. The main index fell 1%.
Foreigners dumped Korean treasuries after the central bank governor told lawmakers late on Thursday that once rates start rising, the hikes would probably be bigger than usual.
Korea is expected to be the next G20 nation to raise interest rates, following Australia’s surprise rate rise last week, as the country seeks to stave off a potential property bubble.
Korean liquid crystal display panel maker LG Display saw its shares drop 4.2% despite it posting record quarterly profits as the market worried about earnings prospects heading into 2010.
Elsewhere in the region, energy stocks got a lift from surging oil prices, pushing shares such as PetroChina, the world’s most valuable oil and gas producer, up 1%.
Thailand’s stock market bounced back 2%, after shedding 5% on Thursday in its biggest drop in a year on concern over the health of the 81-year-old king. The palace said on Thursday that the king’s health was improving but he needed time-consuming physical therapy.
The shift to high-yielding currencies sent the Australian and New Zealand dollars to fresh highs for the year against the dollar.
Oil rose for the seventh straight session, gaining 48 cents to a one-year high of $78.06 per barrel, after data showed unexpectedly steep declines in US inventories.
Oil is heading for a gain of nearly 9% this week, buoyed by signs that a global economic recovery is slowly gathering steam and by persistent weakness in the dollar. However, as is the case in stock markets, some analysts believe some profit-taking may be on the cards after the steep price run-up in recent months.
Gold steadied around $1,050 an ounce, after falling more than $10 the previous day, as the precious metal consolidated from record highs hit earlier this week.