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Asian markets hurt by muted Fed stimulus

June 21, 2012

HONG KONG: Asian markets mostly slipped today on disappointment at the US Federal Reserve’s muted stimulus measures aimed at kickstarting the economy, while European concerns also remained in focus.

Adding to the selling pressure were preliminary numbers from banking giant HSBC showing China’s manufacturing activity hit a seven-month low in June.

Sydney fell 1.09%, or 44.8 points, to 4,087.6 and Seoul gave up 0.79%, or 14.97 points, to close at 1,889.15.

And in the afternoon Hong Kong slipped 0.82% while Shanghai was 1.25% lower.

But Tokyo closed 0.82% higher, adding 71.76 points to 8,824.07 owing to a slightly weaker yen.

The US central bank said it would extend Operation Twist – selling short-term debt to buy longer term Treasuries – for another six months and was “prepared to take further action” if needed.

The plan is to push down interest rates for borrowers, reducing mortgage repayments.

However, traders who had sent markets higher in Asia yesterday in expectation of a third round of monetary stimulus – or quantitative easing – were unimpressed.

The Fed, after a two-day meeting, also predicted US growth would be even worse than thought this year, forecasting 2012 growth of between 1.9% and 2.4% – a half point cut from predictions made as recently as April.

Chairman Ben Bernanke also pointed to slower progress in reducing unemployment and to spillovers from Europe’s economic crisis.

“The Fed did the least that was expected, extending Operation Twist until the end of the year, but not altering the size of its balance sheet at all and not – as some analysts suggested it might – changing when it thinks it will start raising rates (still late 2014),” said FT Advisors in a research note.

On Wall Street the Dow fell 0.10%, the S&P 500 slipped 0.17% and the Nasdaq was flat.

The dollar edged up as the Fed’s announcement meant there was no flood of extra cash into the economy. It rose to 79.60 yen in afternoon Tokyo trade, compared with 79.49 yen late yesterday in New York.

In Beijing HSBC said early figures showed its Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 48.1 in June compared with a final reading of 48.4 in May, indicating a sharp slowdown in the economy.

Anything above 50 is seen as growth while anything below is contraction.

The June figure also marked the eighth consecutive month that manufacturing has contracted, while new export orders, a component of PMI, recorded their sharpest decline since March 2009, HSBC said, but did not give a figure.

“With external headwinds remaining strong, exports are likely to decelerate in the coming months,” HSBC’s co-head of Asian economic research, Qu Hongbin, said in the statement.

There was some cheer in Europe as a new Greek government coalition of three parties was sworn in and set about planning for talks with the country’s debtors to realign its bailout terms.

But eyes are also on Spain where borrowing costs remain elevated amid fears the country will follow Greece, Ireland and Portugal in needing a bailout as it struggles with record unemployment and a huge deficit.

The yield on Spanish benchmark 10-year government bonds soared to a record high above 7.2% earlier this week but late yesterday was a little over 6.8%, although that is still regarded as unsustainable in the longer term.

Madrid is also due later in the day to make a formal request for a bailout of up to 100 billion euros (US$127 billion) to save banks laden with bad loans extended during a real estate bubble that imploded in 2008.

The euro was at US$1.2675 and 100.96 yen in Tokyo from US$1.2702 and 100.97 yen in New York.

Crude prices fell in early Asian trade, with New York’s main contract, light sweet crude for August delivery, shedding US$1.10 to US$80.35 a barrel and Brent North Sea crude for delivery in August retreating 47 US cents to US$92.22.

Gold was US$1,601.10 an ounce at 0345 GMT, compared with US$1,606.90 late yesterday.

In other markets:

  • Taipei fell 0.76%, or 55.58 points, to 7,279.05. Smartphone maker HTC fell 2.81% to Tw$380.0 while TSMC was 1.23% lower at Tw$80.6.
  • Wellington closed 1.03%, or 35.40 points, lower at 3,409.39.



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