Asian shares extend losses, gold rises
TOKYO — Asian shares extended losses on Friday as markets fretted over the US fiscal cliff and the risk of it tipping the world’s largest economy into recession, as well as ongoing doubts about a workable bail-out for Greece.
After a two-day sell-off, a 0.4% rise in US stock futures pointed to a firm Wall Street open. European shares were seen narrowly mixed, with financial spread betters expecting London’s FTSE 100, Paris’s CAC 40 and Frankfurt’s DAX to open somewhere between a 0.1% fall and a 0.1% rise.
Thursday’s losses in global stocks weighed on MSCI’s broadest index of Asia-Pacific shares outside Japan, which eased 0.2% on top of the previous day’s 1.3% slide, its biggest one-day percentage drop in two months. The index was set for a 0.4% weekly fall.
Washington must resolve the fiscal cliff by finding a compromise to cut the US deficit before nearly $600bn worth of spending cuts and tax increases kick in early in 2013.
Market are also eyeing the debt ceiling, which needs to be raised to avoid a government shutdown.
Analysts say the fiscal cliff could derail the US economy, which has recently defied a general trend in other parts of the world by showing signs of a modest recovery. A US recession could drag the global economy down further.
"The focus has turned back to the economy after the US election, with concerns over eurozone risk resurfacing while the fiscal cliff worries weigh on the local index," said Kim Soon-young, an analyst at IBK Securities.
Chinese data showed industrial output and retail sales for October slightly exceeded expectations, while annual October consumer inflation eased to its slowest pace in nearly three years, giving policymakers scope to further looser monetary policy if needed. Given the general bearish sentiment, the data helped prevent Asian shares from widening their losses.
Annual growth in fixed-asset investment also overshot market expectations, raising hope for a modest economic recovery in the fourth quarter.
"But given the uncertainties in the outside world, we expect the recovery momentum to be limited and the full-year industrial output is likely to be around 10% for this year," Guotai Junan Securities analyst Iang Chao said in Shanghai.
Australian shares fell 0.5% and South Korean shares ended down 0.5%. Japan’s Nikkei stock average closed 0.9% lower.
But the Philippines stock market was slightly firmer, as a lack of confidence in the US and Europe may turn these markets more appealing for asset diversification.
The Philippines’ 10-year global peso note issue attracted huge demand and allowed the government to raise $750m at a yield lower than initial guidance.
As investors generally reduced exposure to risk assets, safe-haven government bonds remained firm, with 10-year Japanese government bond yields hitting a fresh three-month low of 0.73%. Benchmark 10-year US Treasury yield steadied around 1.63%, after touching a low of 1.618% on Thursday.
Euro off lows
The dollar was down 0.1% after hitting a two-month high against a basket of major currencies of 81.001 on Thursday. Rising demand for Treasuries on the back of the looming US fiscal crisis underpinned the dollar.
Gold rose to a three-week high of $1,737.60 an ounce, up 3.6% on the week, its biggest weekly gain since the end of January. Bullion is supported by expectations for a continuation of ultra-easy US monetary policy under President Barack Obama’s second term, and on demand for safety due to concerns about the US fiscal woes.
The euro recovered, up 0.2% to $1.2773, having fallen to a two-month low of $1.2717 on Thursday.
The euro was undermined after the European Central Bank (ECB) kept rates on hold on Thursday, as expected, and its president, Mario Draghi, sounded downbeat on the eurozone economy, saying he was ready to start new purchases of bonds.
"Eurozone policy makers are just trying to buy time, which is what they have been doing all along. So the euro faces downside risks. I think it could test $1.25," a trader at a European bank said.
More worrying signs about the European economy emerged after data showed German exports slid at their fastest pace since late last year, adding to evidence that the eurozone’s debt crisis has begun to inflict a heavy toll on Europe’s largest economy.
A coalition government in heavily indebted Greece still needs to pass the 2013 budget in a vote expected on Sunday.
But Spain on Thursday successfully sold long-term debt to complete its 2012 issuance programme, giving the government breathing room to hold out before requesting international aid.
US crude rose 0.4% to $85.41 a barrel and Brent rose 0.2% to $107.45.
Sluggish equities kept sentiment weak in Asian credit markets, widening the spread on the iTraxx Asia ex-Japan investment-grade index by five basis points.
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