Shares recover but sentiment shaky
Asian shares rebounded today but sentiment was vulnerable due to uncertainty over a bailout for Spain and signs of Europe struggling to find a unified approach to tackling its debt crisis as global lenders wrangled over Greek restructuring.
A recovery in Chinese shares pulled the MSCI index of Asia-Pacific shares outside Japan out of the negative territory to trade up 0.5 per cent. The index fell to its lowest point since September 14th yesterday, wiping out almost all the gains made after markets rallied on the US Federal Reserve's new quantitative easing stimulus to boost job creation.
Worried about the impact of the global economic slowdown on corporate earnings, investors drove the Shanghai Composite down to its lowest close since February 2009 yesterday at 2004.2, levels perceived by market players as key in prompting authorities to take steps to prop up the market.
Hong Kong and domestic Chinese stock markets have also been undermined by a lack of action by their central banks in the wake of global easing from the United States to Japan.
China cut interest rates twice in June and July and lowered banks' reserve requirement ratio three times since late 2011, but has refrained from cutting interest rates or RRR since July, though it has kept money markets liquid.
Hong Kong shares rose 0.5 per cent, with traders saying prices were lifted by some adjustments ahead of the third-quarter end and short covering in bank stocks, while Shanghai shares inched up 0.3 per cent.
"Shanghai shares approaching the low end to the downside prompted investors to buy back shares as the level reflects an excessively bearish sentiment and offers a bargain," said Hirokazu Yuihama, a senior strategist at Daiwa Securities.
"But there won't be much to the upside as worries about Spain will cap prices," Mr Yuihama said.
"Markets may be hoping for a central bank stimulus, but I think China's aim is to achieve a soft landing and not to beef up fundamentals greatly. China may be feeling that measures taken so far are sufficient to achieve that goal," he added.
Instead cutting interest rates or lowering banks' reserve requirements further, China has been pumping in ample funds to the markets.
China's central bank injected a net 365 billion yuan into money markets this week, traders said, the largest weekly injection in history, as regulators struggle to maintain liquidity without producing inflation as forex inflows slow.
Japan's Nikkei stock average bucked the broader Asian trend, hovering just above a fresh two-week low.
Despite worries about Europe denting sentiment, asset prices broadly remained in recent ranges.
"Economic data seems encouraging in the US, concern is rising in Asia and some element of disbelief on the European scene," Sebastian Galy, strategist at Societe Generale, said in a note. "That disbelief in Europe needs to be more severe for an actual full scale correction, though rising volatility may be enough to trigger a further forced reduction in some peripheral assets."
The euro traded at $1.2873, not far from a two-week low of $1.2835 touched yesterday.
The yen was at 77.67 yen, staying near a one-week high of 77.585 hit yesterday.
Growing investor risk aversion lifted the CBOE Volatility index, a gauge of expected volatility in the Standard & Poor's 500 index, up 8.94 per cent yesterday for its biggest daily increase in two and a half weeks, after it hit a three-week high.
As protestors against severe austerity measures took to the streets and clashed with police in Spain and Greece, European equities saw their worst day in two months. Spanish 10-year bond yields rose back above 6 per cent for the first time since the European Central Bank said on September 6th that it would buy sovereign bonds of euro zone states which request a bailout, aiming to trim borrowing costs.
Spanish prime minister Mariano Rajoy presents a series of reforms and a tight 2013 budget today, while gradually moving towards seeking a sovereign bailout, which would activate the ECB's bond-buying scheme.
Spain also faced Moody's latest credit rating review and an independent audit's stress test showing how much more money Madrid will need to strengthen its shaky banking sector.
Greece's international lenders remained divided over how to approach Athens' debt restructuring as creditors seek to minimise losses on their exposure.
The dollar index measured against a basket of currencies eased 0.1 per cent to 79.789, off a two-week high of 80.012 reached yesterday. A weaker dollar helped a modest recovery in dollar-denominated industrial commodities such as oil and copper, as well as gold.
US crude inched up 0.2 per cent to $90.18 a barrel and Brent edged up 0.1 per cent to $110.14. London copper was up 0.3 per cent at $8,142 a tonne. Spot gold traded up 0.1 per cent to $1,753.60 an ounce.
Not all Asian countries are in need of immediate stimulus, however, as the Philippines' central bank governor told Reuters yesterday. He said the Philippines'' domestic demand remained buoyant despite the global slowdown dampening exports.
Asian credit markets were marginally firmer, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by one basis point.