Asian shares drift lower, Fed gets the blame

Reuters
Pedestrians are reflected on a stock quotation board displaying a graph of the movement of Japan's Nikkei average outside a brokerage in Tokyo August 28, 2013.
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Pedestrians are reflected on a stock quotation board displaying a graph of the movement of Japan's Nikkei average outside a brokerage in Tokyo August 28, 2013. REUTERS/Yuya Shino/Files

By Wayne Cole

SYDNEY (Reuters) - Asian share markets were mostly under water on Tuesday while currencies dithered in tight ranges as a dearth of major economic news left investors to fret on the outlook for monetary policy in the United States and Europe.

Taking its cue from a softer Wall Street, MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.6 percent. Shanghai shed 0.8 percent, and Seoul 0.2 percent.

Returning from holiday, Tokyo's Nikkei slipped 0.1 percent. One bright spot was stocks in iPhone suppliers, burnished by news Apple Inc (AAPL.O) had sold 9 million new iPhones during their first three days in stores.

European shares were seen falling for a third straight day. Financial spreadbetters expect Britain's FTSE 100 to open down 0.15 percent, Germany's DAX down 0.16 percent, and France's CAC 40 down 0.1 percent.

U.S. stock futures also pointed to further weakness on Wall Street later in the day.

Lacking an obvious culprit, dealers tended to blame uncertainty about when the Federal Reserve will start trimming its asset buying following last week's shock decision to maintain the programme at $85 billion a month.

"I do think that there was a sense of complacency before, about the Fed being able to drive the market higher simply through doing whatever it was doing," said Damien Boey, equity strategist at Credit Suisse.

"But, now there's been a reflection on that and the market's come off and I think that will continue."

Moves were modest in currencies. The euro idled at $1.3493, having slipped 0.2 percent on Monday. Both the euro and the dollar lost ground to the yen, which firmed to 98.76 per dollar.

The net result was to leave the dollar little changed against a basket of currencies at 80.469, and still uncomfortably close to a seven-month trough hit last week.

Sovereign bonds were generally bid amid the mild risk-off tone. Yields on 10-year Treasury debt eased another basis point to 2.69 percent, leaving them 16 basis points lower since last week's Fed meeting.

Economic data had been too mixed to offer much direction.

Markit's preliminary U.S. Manufacturing Purchasing Managers Index (PMI) unexpectedly retreated to 52.8 this month from 53.1 in August.

That contrasted with Markit's Eurozone PMI which jumped to 52.1 in September, from last month's 51.5, its highest since June 2011. It also followed a firmer-than-expected survey on China's manufacturing sector.

Another reading on German business sentiment from the Ifo Institute is due later and expected to show an improvement to 108.2 in September.

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In truth, dealers conceded there was not much rhyme or reason behind the latest market moves.

The euro apparently dropped because European Central Bank President Mario Draghi said euro zone interest rates will remain at current or lower levels for an extended period. Yet, he has been saying the same thing for weeks with little obvious impact on the currency.

Wall Street's wobble was attributed in part on a comment by New York Fed President William Dudley that the timeline for tapering was still in place.

But Treasuries rallied because Dudley also said he wanted to see a broader improvement in the labour market before signing off on tapering, emphasising the need for policy to "forcefully" push back against economic headwinds.

Dudley is a close ally of Fed Chairman Ben Bernanke and is assumed to speak for the dovish majority of voters on the Open Market Committee, which gives his words weight with investors.

One of the headwinds cited was U.S. fiscal policy amid a political showdown in Washington that could see the government shut down, or at the very extreme, default on its debt.

The wrangling looks set to roll on for some weeks, providing a distraction to policy makers and investors alike.

In commodities markets, gold steadied at $1,327.50 an ounce after failing to sustain its Fed-inspired rally to $1,374 last week. The story was much the same in copper futures which held at $7,227.51, from last week's peak of $7,368.00.

Brent crude oil was down a single cent at $108.15 a barrel, while U.S. crude eased 3 cents to $103.56.

(Editing by Jacqueline Wong & Kim Coghill)

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