Asian stocks are set for their first weekly rise in a month buoyed by coordinated central bank actions, while the euro held on to hefty gains before European policymakers make a fresh stab to tackle its crisis at a summit next week.
Most Asian markets succumbed to some profit-taking today after yesterday’s jump on caution ahead of monthly US payrolls data due later in the day and an important European summit on December 9th.
The Nikkei average extended gains to log its biggest weekly advance in two years, though the mood was far from upbeat given uncertainty over whether Europe will next week manage to cobble together steps to counter the debt crisis.
European stock futures pointed to a higher open for equities. By 7.03am, futures for Euro STOXX 50 futures, Germany's DAX and France's CAC were 0.8 to 1 per cent higher.
While the move by major central banks to together cut the cost of funds in money markets led to a relief rally in stocks and currencies this week, the undertone remains subdued as investors seek a more permanent resolution to Europe's crisis.
"We're in consolidation mode but its basically down to the non-farm payrolls today and then back to Europe next week," said Christian Keilland, head of trading at agency brokerage BTIG in Hong Kong.
"And the propensity of Europe to drop the ball on these is huge," he said. "Funds that are flat to down this year are probably going to scramble and try push things higher but it's going to be difficult."
European Central Bank president Mario Draghi is urging progress towards a new euro-zone fiscal program and is willing to act more aggressively, while the leaders of France and Germany are working hard at a compromise.
Stock indices in Asia slipped after yesterday's bounce. Hong Kong, Shanghai and Korea trended lower while MSCI's broadest index of Asia Pacific shares outside Japan edged lower after jumping more than 4 per cent yesterday. For the week it is up more than 8 per cent.
While the coordinated action by central banks pushed dollar LIBOR rates down for the first time in more than four months, traders said more steps need to be taken to thaw the spreading freeze in money markets.
Even as London interbank offered rates for three-month dollars fell to 0.52722 per cent yesterday from 0.52889 per cent in risky assets, its first decline since July 22nd, some traders used the bounce as a selling opportunity.
The rising cost of dollar funds have sapped demand for Asian credits and hurt issuance going into the year end period.
Traders said borrowing via these new swap windows would be small due to a variety of factors such as the decline in external liabilities of euro area banks, the stigma associated with borrowing from the ECB and a lack of eligible collateral among banks, which may be addressed in next week's euro summit.
"It does feel a little better but we are seeing sellers into the strength," said a Singapore-based trader with an Asian bank. "No one is massively in a risk on mode at the moment."
The benchmark Nikkei added 0.5 per cent to 8,643.75, for a weekly gain of 5.9 per cent, its biggest since the first week of December 2009. In one positive technical sign, the Nikkei stayed comfortably above its 25-day moving average, at 8,573.
Still there are many more hurdles for the Nikkei, such as its 75-day moving average at 8,682 and the Ichimoku cloud that looms above 8,700.
"Right now we are in the middle of the market's trading range from September and October, which means there will be a lot of selling interest here," said Hiroyuki Fukunaga, CEO of Investrust.
The broader Topix climbed 0.6 per cent to 744.14.
Trade volume slowed to 1.57 billion shares, in line with the monthly average, from yesterday's 2 billion. Advancers outnumbered decliners by 960 to 555.
In credit markets, spreads on the Asia ex-Japan iTraxx investment grade index held around 200 basis points compared to 206 bps in the previous session.
In currencies, the euro struggled to extend its chunky gains of this week, with traders focused on the closely watched US non-farm payrolls report due later today.
Due at 1.30pm, the labour data is expected to show an increase of 122,000 jobs and a steady unemployment rate of 9.0 per cent. A positive surprise is likely to underpin risk sentiment, while a weaker-than-expected outcome could prompt investors to take more profits on recent gains.
US Treasury prices extended declines with 10-year yields trading around 2.09 per cent, above a 1-1/2 month low of 1.89 per cent hit last week.
Spot gold traded broadly flat around $1,740 per ounce while US crude futures dipped slightly to around $100 a barrel.
Reuters
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