Thursday, June 20, 2013

Asian Stocks and Currencies Join Sell-off After Bernanke Comments

GLOBAL MARKET OVERVIEW
June 20, 2013 4:05 am

Asian stocks and currencies join sell-off after Bernanke comments

By Josh Noble in Hong Kong
Financial Times
Thursday 04.00 BST.

Asian equities and currencies sold off after the Federal Reserve laid out a path to the end of quantitative easing in the US. Weak Chinese economic data further dented sentiment.

US government bonds came under heavy selling pressure overnight after Ben Bernanke, Fed chairman, said the central bank could begin scaling back its $85bn-a-month asset purchase programme later this year if the US economy continued to improve.

“Bottom line – no backing down, no turning back, the Fed will taper unless the data deteriorate,” said Kit Juckes, currency strategist at Société Générale.

Indeed, Mr Bernanke said the Fed’s bond purchases could halt completely by mid-2014, when the US unemployment rate is expected to be down to 7 per cent. “The Fed’s new forecasts also suggest that the first rate hike could come earlier in 2015 than previously thought,” said Paul Ashworth at
Capital Economics.

Australia’s ASX 200 dropped 2 per cent, while the Aussie sank to $0.9258 against the US dollar, its lowest level since September 2010. Mining stocks came under pressure after HSBC released its flash China purchasing managers’ index, which fell to a nine-month low of 48.3. On Wednesday, HSBC slashed its China growth forecast for both this year and next, and now expects the world’s second-largest economy to expand at 7.4 per cent in both years. Sydney-listed shares on mining group Rio Tinto dropped 2.9 per cent in response.

China’s liquidity crunch worsened further, with the seven-day interbank repo rate spiking to 12 per cent, a record high.

Financial stocks saw heavy selling as a result. The CSI 300 lost 1 per cent and the Hang Seng index shed 2.1 per cent.

South Korean and Taiwanese stocks lost 1.3 per cent and 1.1 per cent, respectively.

Japan’s benchmark Nikkei 225 stock average retreated 1 per cent while the broader Topix index dipped 0.8 per cent, despite a weaker currency. The yen dropped to Y96.47 to the dollar as the greenback gained across Asia, building on overnight advances.

“Hopes that the Fed would sound more dovish were dashed and consequently both yields and the US dollar were spurred higher,” said Mitul Kotecha, strategist at Crédit Agricole in a note to clients. “At present . . . the USD looks set to sustain broad-based gains as its relationship with yield looks to have been finally re-established.”

Smaller Asian countries continued to feel the pain of the wider sell-off in emerging markets. Indonesian stocks lost 1.3 per cent, while the Philippines index lost 2.5 per cent as the peso fell to its lowest level since May last year.

“We now know where the Fed stands, and I must say this is not particularly good news for global emerging markets [GEM]”, Société Générale analyst Benoit Anne wrote in a research report.

“While the moves have already been severe in many markets, I would argue that today’s signals will kick off the second leg of the GEM sell-off. In short, considerably more pain on the way.”

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