TOKYO — Asian shares rose on Wednesday as investors resumed buying after taking profits from a sharp rally at the start of the year, while warily bracing for the corporate earnings season to kick off in full force.
European shares were expected to follow Asia’s lead with a modest rise, with financial spread betters predicting London’s FTSE 100, Paris’s CAC 40 and Frankfurt’s DAX would open as much as 0.3% higher. US stock futures suggested a firmer Wall Street start with a 0.1% gain.
The yen’s rebound as part of broader market position adjustments was also short-lived, with the dollar erasing earlier losses to rise 0.5% to ¥87.48 on sustained expectations of further monetary easing in Japan.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%. Hong Kong shares were among the top gainers with a 0.5% climb, bouncing from their lowest in a week as Chinese banks were supported by a brokerage upgrade. Shanghai shares rose 0.3%.
"We are running into chart resistance now, so investors are looking to rotate into laggards. There is no need to be too bearish right now, at least in the first quarter," said Hong Hao, Bank of Communication International Securities’ chief strategist.
Australian shares closed 0.4% higher, breaking a three-day losing streak.
Alcoa, the largest aluminium producer in the US, with customers in a wide range of industries, launched the US earnings season on Tuesday. It reported a fourth-quarter profit of $242m, in line with Wall Street expectations.
US corporate profits are expected to be higher than the third quarter’s lacklustre results but analysts’ estimates are down sharply from where they were in October.
Credit Suisse said in a research note that Asian equity indices may start to catch up with earnings estimates, which had been outperforming market prices, suggesting further upside scope for Asian share prices.
The consensus earnings forecast so far is flat in January, following virtually flat revisions in December, it said.
"It was the persistent EPS (earnings per share) downgrades that led to the gap between equity market price indices and EPS. These flat revisions could act as a catalyst for equity market price indices to converge with EPS," Credit Suisse said.
Data flows were light with a surprise 0.1% fall in Australian retail sales in November from October, against forecasts for a 0.3% rise on the month, sending the Australian dollar down to session lows of US$1.0486 from US$1.0517 before the data release.
China will release December trade data on Thursday, including initial estimates for metals imports and exports.
US crude and Brent both eased 0.1%, to $93.03 a barrel and $111.86 respectively.
"What we’re seeing in the oil markets is the cautious sentiment playing up ahead of some key economic events this week," Phillips Futures senior investment analyst Ker Chung Yang said in Singapore.
Yen stays weak
Japan’s benchmark Nikkei stock average erased earlier losses to end 0.7% higher, bolstered by the yen’s resumed weakness. The dollar had risen about 12% over the past two months against the yen, contributing to the Nikkei’s 22% jump in the same period.
The expectation of much bolder monetary easing from the Bank of Japan to help Tokyo beat deflation under new Japanese Prime Minister Shinzo Abe has encouraged investors to sell the yen.
But as trading resumed from year-end holidays, analysts and traders said markets were ripe for position adjustments.
"After a good run in risk assets since December, we entered in a phase of consolidation which is moving from Japanese equities to short yen positions," Sebastien Galy, Société Générale’s forex strategist in New York, said in a note, adding that the dollar could consolidate to ¥85 but first had to take out the first Fibonacci retracement at ¥85.75.
Yen crosses which had been bought the most, including the yen/Korean won, are the most exposed to the correction.
"Such a washout in yen crosses is the opportunity many long-term investors will be waiting for to continue their switch into strategic short yen positions," Mr Galy said.
The dollar earlier on Wednesday fell as low as ¥86.825, having scaled its highest since July 2010 at ¥88.48 on Friday. The euro also added 0.2% to ¥114.475, off the day’s lows of ¥113.55. The euro last week hit ¥115.995, its highest since July 2011.
The Bank of Japan will consider easing monetary policy again at its January 21-22 meeting, by likely boosting buying of government bonds and treasury discount bills, while considering a doubling of its inflation target to 2%.
The euro held steady against the dollar at $1.3086, ahead of Thursday’s European Central Bank policy meeting and Spanish and Italian bond auctions toward the end of the week.
Sentiment turned cautious in Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index widening slightly by one basis point.