|
 Government borrowing costs from Japan to Australia hit fresh highs
on trepidation the Federal Reserve could start tapering its $85
billion of monthly debt purchases at its policy meeting on December
17 and 18.
"It's still 50/50 as to whether they move in December or wait to see
a bit more certainty that recent strength will be sustained," said
Shane Oliver, head of investment strategy and chief economist at AMP
Capital.
While all the uncertainty was a drag for now, he was optimistic
longer term. "Tapering will only occur because the Fed is more
confident the U.S. recovery is sustainable," argued Oliver. "In
other words, mission accomplished."
"And the Fed will likely couple the start to tapering with a move to
further push out expectations for the first rate hike."
For the moment, though, discretion was coming out ahead of valor and
share markets across Asia were mixed at best.
Japan's Nikkei <.N225> at least managed to steady after steep falls
the previous two days.
Dealers said offshore investors remained buyers of exchange-traded
funds and index heavyweights in the firm belief the Nikkei is on a
sustained uptrend given the determination of the Bank of Japan to
beat deflation.
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> was dead flat, as was South Korea's <.KS11>.
Shanghai stocks slipped 0.6 percent <.SSEC> as China set its yuan at
a record high, continuing the slow appreciation of the currency.
The lead from Wall Street was again less than helpful with the Dow
Jones <.DJI> and the S&P 500 <.SPX> both ending down 0.43 percent.
That marked a fifth straight day of losses as investors fretted
about the risk of Fed tapering.
Crucial to that decision could be the payrolls report for November
due later Friday. The median forecast is for an increase of 180,000
in payrolls with the jobless rate steady at 7.2 percent.
The market would tend to see anything over 200,000 as greatly adding
to the chance of a tapering this month, while a result under 150,000
would diminish the risk.
It is worth remembering that total U.S. employment is over 136
million so the difference in a monthly rise in jobs of 150,000 or
200,000 is statistically insignificant, yet it has the power to move
markets massively.
PARSING DRAGHI
Not helping was that Thursday's U.S. data seemed strong on the
surface but the detail was not so positive. While economic growth
was revised up to an annualized 3.6 percent for the third quarter,
all the increase came in a build up of inventories.
[to top of second column] |
That led analysts to assume inventories would be run down this
quarter and thus drag on growth. Indeed, economists at Westpac saw a
chance that the economy might actually shrink.
"We are not forecasting recession, but don't use these apparently
solid GDP data as evidence tapering is imminent," they wrote in a
note to clients.
Yet the headline growth number was enough to send yields on 10-year
U.S. Treasury notes to 2.87 percent, just off a three-month peak.
Yields in Japan hit their highest in seven weeks, while 10-year
yields in Australia reached territory last seen in early 2012.
European yields had already climbed after European Central Bank
President Mario Draghi sounded in no hurry to take further
stimulative action.
In particular, the market was spooked when Draghi played down the
need for another long-term liquidity operation (LTRO). Dealers had
been hoping for just such an operation to ease a liquidity squeeze
over year end.
As a result yields on two-year German government debt spiked to 21
basis points, from just 12 at the start of the week, and took the
euro higher in their wake.
The single currency was up at $1.3662 on Friday having finally
cracked tough resistance at $1.3620. The next chart target was
$1.3705/18, which would not be too distant from the 2013 top of
$1.3832.
Against the yen, it edged up to 139.27, but struggled to break the
five-year peak of 140.03. The dollar held at 101.93 yen after a
couple of days of decline.
In commodity markets, spot gold held at $1,225.75 an ounce, heading
for a loss for the week of 2 percent.
Nymex crude was up 2 cents at $97.40, cementing gains of 5 percent
for the week so far thanks to a drop in U.S. crude stocks. Brent
crude added 28 cents to $111.26.
[By Wayne Cole © 2013 Thomson Reuters. All
rights reserved.]
(Editing by Shri Navaratnam)
Copyright 2013 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
