TOKYO, Sept 3: Asian shares inched up on Monday after U.S. Federal Reserve Chairman Ben Bernanke kept the door open for further stimulus if needed, but gains were capped by weak economic indicators across the region and caution over U.S. Data due later this week.
Bernanke stopped short of clearly signalling an imminent move last week, prompting investors to turn to reports from China to Australia that highlighted how the euro zone’s debt crisis has eroded growth and threatened further slowdowns.
MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.2 percent, after earlier falling 0.5 percent to a fresh four-week low.
Japan’s Nikkei stock average dropped 0.4 percent to a four-week low on concerns over a sluggish Chinese economy.
The Australian dollar, which is highly sensitive to data from China, Australia’s single largest export market, fell to its lowest since July 25 of $1.0240 on Monday, before rebounding to $1.0264. The Aussie also hit a nine-week low against the euro.
The HSBC China Purchasing Managers’ Index fell to a seasonally adjusted 47.6, its lowest level since March 2009, little changed from a preliminary estimate of 47.8.
The report on China’s manufacturing activity for smaller and privately-owned producers followed the official factory PMI on Saturday which dropped below 50 for the first time since November 2011 – the latest signal that the world’s second-biggest economy is struggling against global headwinds and the case for further official stimulus is strengthening.
Australian government figures showed on Monday retail sales fell 0.8 percent in July, the largest decline since October 2010 and well short of the median forecast of a 0.2 percent increase.
‘Obviously, the Aussie is taking the brunt of China’s dismal economic data, especially as the currency had consistently outperformed other markets over the past few months despite volatile risk sentiment. It was due for a correction.’ said Daisuke Karakama, market economist for Mizuho Corporate Bank.
Other data on Monday showed Taiwan’s PMI fell to 46.1 in August for its steepest manufacturing contraction this year, hit by a drop in new export orders. Over the weekend, South Korean data showed for the first 20 days of August exports fell 6.2 percent from a year earlier as sales to China and the European Union slipped.
BERNANKE SUPPORTS SENTIMENT
Bernanke, speaking at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming, on Friday expressed ‘grave concern’ for the stagnating U.S. Job market and said the Fed was prepared to take further steps to strengthen the economy if necessary.
Bernanke said the Fed had to weigh the costs and the benefits of further stimulus, but downplayed potential risks from unconventional policies, arguing the Fed’s asset purchases, known as quantitative easing, had been quite effective at boosting growth and fostering job creation.
His comments heighten market focus on U.S. Data due this week including the ISM manufacturing on Tuesday and the monthly jobs report on Sept. 7 ahead of the Fed’s Sept. 12-13 meeting.
‘It is inevitable we will see another round of economic stimulus in September,’ said Jeff Sica, chief investment officer of Sica Wealth Management.
But he cautioned that markets may decline after the Fed’s meeting given high expectations for a bold step already reflected in the recent performance of the Standard & Poor’s 500 index, which hit a four-year high last month.
‘The Fed cannot use a massive quantitative easing program since food and energy prices will ultimately accelerate creating massive inflation,’ he said.
Bernanke’s comments boosted global stocks and sent U.S. Treasuries yields to their lowest levels in three weeks, while lifting the euro to an eight-week high against the dollar of $1.2638 on Friday. The euro was up 0.1 percent to $1.2576 on Monday. The dollar was likely to remain pressured by the prospect of further easing from the Fed.
‘Throw in the China slowdown and the Europe situation, then Fed policy will continue to gently nudge the dollar a bit weaker in order to support the euro,’ said Richard Hastings, macro strategist at Global Hunter Securities.
The dollar eased 0.2 percent against the yen to 78.25 , after slipping to a three-week low of 78.187 on Friday on Bernanke’s comments.
The dollar ended August marginally up against the yen, defying the jinx that has usually seen the yen firm against the dollar in the month.
Data on Friday showed currency speculators turned negative on the dollar in the latest week for the first in nearly a year.
The European Central Bank takes the spotlight with its policy meeting on Thursday, where markets have been expecting the bank to outline, and possibly offer some details of its bond-buying scheme aimed at driving down borrowing costs of highly-indebted euro zone members such as Spain and Italy.
(agencies)
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