SYDNEY (Reuters) — Asian share markets
were in hesitant mood on Wednesday as investors keep a wary eye on
interest rates in China, though the euro left the dollar in its dust
after more soft U.S. economic data.
The action was light, with MSCI's broadest index of Asia-Pacific
shares outside Japan barely changed and Australia up a slim 0.3
percent. Shanghai stocks were flat while Seoul lost 0.6 percent.
Japan's Nikkei pared its early losses to be off 0.6 percent,
battling to maintain the momentum of Tuesday's 3 percent rally which
followed a decision by the Bank of Japan to expand a scheme to
encourage more bank lending.
The move was taken as a sign that the central bank was open to
further easing steps, which many expect will be needed once an
increase in Japan's sales tax is enacted in April.
Dealers will also be carefully watching China's central bank after
it drained funds from the money market on Tuesday.
The People's Bank of China (PBOC) is trying to engineer a gradual
upward shift in the cost of money to encourage companies to
deleverage and discourage high-risk shadow banking activity.
Investors are anxious in case the tightening goes too far and hurts
economic growth, concerns that have periodically put pressure on
currencies and shares across the Asian region.
Wall Street failed to offer much of a lead with the Dow off 0.15
percent on Tuesday, while the S&P 500 added 0.11 percent. The Nasdaq
fared better with a gain of 0.68 percent, bringing its winning
streak to eight straight sessions, the longest since July.
The tech-heavy index was boosted by a jump in the shares of Tesla
Motors Inc on speculation Apple might be interested in bidding for
the electric car maker.
Disappointing data on New York manufacturing and U.S. housing added
to the case for the Federal Reserve to be patient in its tapering
plans and pushed Treasury yields lower, so undermining the dollar's
interest rate advantage.
Yields on the benchmark 10-year U.S. Treasury note eased 4 basis
points to 2.71 percent.
Later on Wednesday, the Fed will release minutes of its January
policy meeting when it decided to trim its asset buying by another
$10 billion.
Fed Chair Janet Yellen has since indicated that the central bank was
still inclined to keep tapering, though markets assume the run of
soft data will encourage patience in its efforts.
MIND THE GAP
The euro was holding broad-based gains after the dollar took a hit
from the soft economic data and news that foreign investors had been
heavy sellers of U.S. assets.
The euro was up at $1.3766 in Asian trade, having stretched as far
as $1.3769 overnight, its highest in seven weeks and breaching a key
resistance barrier at $1.3740.
The euro was also firm at 140.70 yen, while the dollar eased back
to 102.19 yen.
Dealers have been surprised by the single currency's resilience
given speculation the European Central Bank would have to ease
further to avert the risk of deflation.
Figures from the U.S. Treasury on Tuesday hinted at one possible
reason for the euro's performance — an outflow of almost $120
billion from U.S. assets in December.
Alan Ruskin, global head of G10 currency strategy at Deutsche Bank
in New York, noted that the net outflow from U.S. equities over 2013
has amounted to a huge $214 billion.
In contrast, the euro zone attracted inflows into stocks of 111
billion euros. At the same time, the euro zone enjoyed a record
current account surplus of 216 billion euros in 2013, while the
United States ran up a deficit of almost $400 billion.
"That the euro was the strongest major currency in 2013 is easily — with all the benefit of hindsight — explained by this current
account and equity flow gap," Ruskin said.
In commodity markets, gold slipped to $1,316.99 an ounce after
running into selling at a 3-1/2-month peak of $1,331.10.
U.S. crude rose to a fresh four-month high on forecasts of lower
crude and oil products stockpiles due to new pipeline capacity and
robust winter demand.
Nymex crude futures were 44 cents higher at $102.87, having jumped
2.4 percent on Tuesday, while Brent crude edged down 7 cents to
$110.39 a barrel.
