Hong Kong: Asian stocks barely rose on Thursday, kept on a short leash by profit taking in consumer shares and investors cutting risk from their portfolios, a shift that has lifted the US dollar broadly to a two-month high.
A rare bit of good news on the US labour market overnight was not met with investors’ applause in the Asian session, with other factors such as the fast closing window on financing in the region and fears of the next fiscal domino to fall in Europe keeping investors focused on preserving capital.
With equity markets off to a cautious start, the Australian dollar - which has become an indicator for risk taking in the region - slipped below $0.98.
Japan’s Nikkei share average was up 0.5% , extending what has been a surprising outperformance of the rest of the region this month.
The Nikkei has risen 9.5% so far in November, and with three more trading days to go in the month is on track for the best performing month since March.
The MSCI index of Asia Pacific stocks outside Japan is down 1.3% in November, perhaps collateral damage from the need of investors to hide out in deeper markets until the new year.
The index was largely steady on the day, with consumer-related sectors seeing a bias to sell.
“With growth above potential in many emerging markets, particularly in Asia, the risk of broad-based inflation is real and growing,” Goldman Sachs analysts said in a note.
“And, as policy responds to this in the form of rate hikes or nominal currency appreciation, equities -- stuck between the pull of growth and the push of tightening policy -- are likely to have a bumpier ride.”.
In capital markets, bankers found even Asia’s financing stronghold of Hong Kong was having difficulty pushing deals through given thinning market conditions and increased risks. More than $3 billion worth of proposed IPOs in Hong Kong were deferred, while Hong Kong Electric Holdings delayed the pricing of its high-grade 10-year dollar bond to next week.
The Thanksgiving holiday in the United States will also keep trading activity limited on Thursday.
The need for liquidity has not necessarily benefited US Treasuries, though higher yields have been a draw to the dollar.
After poor auctions of mid-maturity debt, the U.S. 5-year yield hit a two-month high of 1.59% overnight, having now risen more than 50 basis points since the most recent Federal Reserve meeting.
Meanwhile, the U.S. dollar index , a measure of its performance against six other major currencies, was up 0.2%, heading back up to 80.00, a level that was test overnight when the index hit the highest since 24 September.
The high-yielding Australian and New Zealand dollars were underperformers among G-10 currencies on Thursday. Uncertainty about what measures China may take to pull down inflation has haunted these currencies.