 Japan Rebounds While China Caution Scuttles Copper, Ringgit Again
Bloomberg - 8/26/2015 8:12:54 AM
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Asian investors grappled with how to receive China’s latest round of monetary easing, as Australian stocks and industrial metals tracked a pullback in U.S. equities, while the weaker yen ignited a rebound in Japanese shares.
U.S. stock futures fell while South Korean equities rose, helping the benchmark index for Asian shares up for the first time in nine days. Gold climbed for the first time this week as the uncertainty bolstered demand for some haven assets, while Malaysia’s ringgit returned to a 17-year low.
“Investors will want to see if the rate cut will truly help the economy,” Hiroichi Nishi, a manager at SMBC Nikko Securities Inc. in Tokyo said by phone. “One of the reasons behind the steep falls so far was the fact that the Chinese authorities hadn’t done anything. The fact that they have now shows that they’re determined not to let the economy worsen, and I expect markets to head toward a calmer direction.”
Gains that propelled the S&P 500 up as much as 2.9 percent disappeared and Chinese exchange-traded funds in the U.S. almost erased rallies, indicating the latest round of stimulus may not be enough to appease investors dumping China’s stocks at the fastest pace in almost 20 years. Shanghai shares extended their tumble Tuesday, capping the worst four-day rout since 1996 amid speculation the government was stepping back from supporting the market. The rate and bank reserve ratio cuts came after Chinese markets closed.
Japan Rebounds
Futures on the S&P 500 dropped 0.4 percent by 10:09 a.m. in Tokyo, while a 1.2 percent jump in Japan’s Topix gauge helped the MSCI Asia Pacific Index climb 0.4 percent. Australia’s S&P/ASX 200 Index fell for the fourth time in five days. The yen retreated a second day, and the yuan fell 0.2 percent in offshore trading. Copper led nickel, zinc and aluminum lower, while gold advanced 0.2 percent.
While China’s decision to reduce rates for the fifth time since November fueled European stock gains, enthusiasm for the move waned as the U.S. session wore on, with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the biggest ETF tracking mainland Chinese equities in New York, almost erasing a 5.2 percent gain to end Tuesday up just 0.1 percent. Futures on the FTSE China A50 Index gained 4.9 percent in recent trading.
A sustained recovery in China’s stock market will depend on further reform from policy makers, said Douglas Morton, head of Asia research at equity brokerage Aviate Global LLP, in London.
The Shanghai Composite Index may extend its slump by another 13 percent should it hold below a closing level of 3,200, said Tom DeMark, the founder of DeMark Analytics who predicted this month’s selloff in Chinese equities. Failure to record gains could pave the way for the index to slump to 2,590, its lowest since November, he said. The Shanghai Composite slid 7.6 percent on Tuesday to 2,964.97.
“Asia remains the epicenter of the current market instability as fears of emerging market growth and currency run-ons invoke memories of the Asian financial crisis,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said by e-mail before markets opened. “Market ’stability’ will then come from this region, however the slide in China and Japan suggest sentiment is ruling price action and hyper-fear trading is still in control.”
The Kospi index in South Korea advanced a second day, rising 0.7 percent to extend its rebound from a two-year low as the won advanced 0.2 percent to 1,193.61 per dollar amid the yen’s retreat.
The ringgit slumped as much as 2.5 percent, returning to its weakest level since January 1998 as the Thai baht also weakened, falling 0.5 percent.
Commodities
Gold for immediate delivery rose to $1,142.30 an ounce after sinking 1.8 percent the past two days. U.S. Treasuries arrested their pull back, with 10-year yields holding at 2.07 percent after rising seven basis points on Tuesday.
Copper for three-month delivery slipped 1 percent to $5,013 a metric ton in London as Nickel sank 0.3 percent and zinc and aluminum lost at least 0.3 percent. Copper’s 2.3 percent advance Tuesday helped the Bloomberg Commodity Index rebound from a 16-year low. China is the world’s biggest industrial metals consumer.
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