Business

Markets buoyed by Fed cheer, hopeful earnings outlook

April 26, 2012
Latest Update: April 26, 2012 10:51 pm

Bernanke smiles as he concludes a news conference following the monthly two-day meeting at the Federal Reserve in Washington, April 25, 2012. — Reuters picBernanke smiles as he concludes a news conference following the monthly two-day meeting at the Federal Reserve in Washington, April 25, 2012. — Reuters picTOKYO, April 26 — Asian shares rose today, retaining positive momentum as the Federal Reserve reassured markets it would keep its very accommodative stance to support growth, while optimism grew over strong quarterly corporate earnings.

Investor confidence was also boosted by a rally in Apple Inc shares as it reported quarterly profits nearly doubling on the back of soaring iPhone sales in China, lifting tech-heavy Asian markets such as Taiwan and South Korea earlier in the day.

There was scepticism Asian markets would climb as much as their global counterparts did overnight, however, as concerns remain over European banks, with Spain’s Santander reporting its first-quarter results later in the session.

European shares were likely to start mixed, with financial spreadbetters predicting that major European markets would open between a 0.1 per cent drop and a 0.1 per cent gain. US stock futures were steady.

“The main factor currently is the firmness in US markets, but in the end, it’s Europe and China that hold key to whether markets can seek more upside,” said Xiao Minjie, chief economist at FuNNeX Asset Management in Tokyo.

“China is unlikely to take specific monetary and economic stimulus until the political struggle over its leadership is cleared, while the euro zone’s debt crisis remains a huge destabilising factor.”

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.5 per cent.

Hong Kong shares climbed 0.4 per cent on strong quarterly results from China Unicom , the mainland’s second-largest mobile phone operator, while Australian stocks added 0.3 per cent as signs the Fed was prepared to offer more stimulus if needed boosted miners and banks.

Japan’s Nikkei average underperformed, however, paring all its earlier gains to end flat.

Japanese earnings will likely be patchy, analysts said.

“Winners and losers will be identified by their ability to beat intensifying global competition,” Xiao said, adding that the way in which they handled the aftermath of last year’s earthquake in Japan and the severe floods in Thailand would also be key.

The recovery in equities helped firm Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by two basis points.

In Japan’s credit default swap market, long- and short-term dealers played tug-of-war, with buyers seeking protection recently pushing up spreads on electronic, steel and shipping names on bad fundamentals. But Japan’s sovereign CDS tightened.

The dollar steadied after falling to a three-week low against a basket of major currencies yesterday following the outcome of the Fed’s meeting, while the euro stood near a three-week high of US$1.3237 touched the day before.

Fed Chairman Ben Bernanke yesterday said US monetary policy was “more or less in the right place” even though the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken.

The Fed also adjusted its economic forecasts to acknowledge an improving labour market and slightly higher inflation over the next few years, suggesting it has become somewhat less inclined to take more action to help the economic recovery.

“The totality of all new Fed communications ... has reinforced the idea that the policy bias is currently neutral and that the outlook remains highly dependent on incoming data,” Societe Generale wrote in a note.

“There were a few vague and seemingly conflicting signals in today’s communications, which probably reflect the difficulty in reconciling the very diverse views within the FOMC,” it said.

With the Fed’s policy decision falling broadly within market expectations, focus turned to the Bank of Japan’s policy meeting on Friday, when the Japanese central bank is expected to boost asset purchases to strengthen an already super-easy policy stance in a bid to bring Japan out of deflation.

“The probability of the BOJ taking further easing measures is high and markets have already priced that in,” said Kazuto Uchida, an executive officer and general manager of the global markets division at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.

“How currency markets react to the outcome of the BOJ meeting will determine subsequent moves in equities and bonds,” he said, adding that anything beyond expected options would serve as a surprise and generate stronger reactions, starting in forex.

Fragile global growth kept the outlook mixed for South Korea, which said today its growth picked up quarter-on-quarter in the January-March period, but year-on-year expansion was the slowest in 2-1/2 years, leaving analysts wondering if the economy has hit a bottom or not.

Oil futures steadied, with Brent crude holding nearUS$119 (RM357) a barrel, as optimism over a recovery in the U.S economy offset easing concerns of a disruption in Iranian oil exports and high US crude stocks. US crude steadied around US$104.15 a barrel.

The International Monetary Fund’s stress tests showed most Spanish banks would be able to handle large economic shocks, but Spain’s Santander could suffer from provisions against property loans that went sour when Spain’s property bubble burst.

“Only a surprisingly negative figure will reduce the market’s optimism caused by the updated Fed outlook. Although don’t be surprised that concerns over Europe will once again ruin the party,” said Miguel Audencial, a trader with CMC Markets in Sydney. — Reuters

 

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