Markets cagey before key Spanish bond sale
TOKYO, April 19 — Asian shares and the euro traded in tight ranges today ahead of a Spanish bond sale seen as a key test of investors’ risk appetite amid renewed concerns over the euro zone’s debt crisis.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.1 per cent higher, spending the morning session vacillating in a band between up 0.2 per cent and down 0.2 per cent. Australian shares outperformed with a 0.4 per cent gain, helped by mining and energy stocks as oil prices rose.
Japan’s Nikkei average fell 0.6 per cent, taking its cue from a fall in US stocks yesterday as uninspiring earnings from tech bellwethers IBM and Intel gave investors a reason to take profits a day after Wall Street’s best gains in a month.
“I would expect a narrow range in today’s trading because traders will have a ‘wait and see’ approach ahead of tonight’s Spanish 10-year bond auction,” said Miguel Audencial, trader at CMC Markets. “The result will give a good indication on how the market will perform in the next few days.”
Doubts over Europe’s ability to stick to harsh measures to slash high public debts began to grow when Spain abruptly relaxed its deficit targets earlier this month, and Italy said yesterday its priority was now reviving economic growth, delaying by a year its budget balancing goal.
Bank of Spain data showed yesterday how sliding house prices and a looming recession adversely impacted the financial sector, with Spanish banks’ bad loans rising to their highest level since Oct. 1994 in February.
Spain faces a significant challenge, with an auction of two- and 10-year bonds later today. Its 10-year government bond yield shot above 6 per cent earlier this week, raising fears that the country would not be able to manage its public financing and would have to turn to an international bailout.
The euro steadied near US$1.3120 while the dollar rose 0.3 per cent against the yen at 81.50. A firmer dollar measured against a basket of major currencies weighed on spot gold, which eased 0.1 per cent to US$1,640 (RM4,920) an ounce.
In addition to the test of market confidence in Spain’s restructuring efforts, there are several key factors that could set the tone for the single currency and risk appetite in coming weeks.
One is a two-round presidential election in France starting on Sunday, with opinion polls showing French President Nicolas Sarkozy facing a tough challenge from Socialist Francois Hollande, who has a double-digit lead for a May 6 runoff.
“If the first round results show Sarkozy losing, it could be seen by markets as raising the probability of him losing on May 6, putting at risk the close cooperation between France and Germany in resolving the euro zone crisis,” said Ayako Sera, a senior market economist at Sumitomo Trust and Banking.
“It is difficult for investors to tip the balance of risks either way. The euro is holding relatively firm despite the uncertainties, but that’s because investors have already built a high level of euro short positions and are side-lined,” she said.
Markets were jittery about available support capacity for containing Spain’s fiscal woes from spreading to vulnerable peripheral euro zone economies, with the focus on the role played by the European Central Bank.
The ECB maintains that governments must act to tackle their fiscal reforms, not rely on action from the central bank, a view reiterated by ECB policymaker Jens Weidmann in an interview with Reuters.
Europe urgently needs to bolster its fragile safety net as highly indebted euro zone nations struggle to implement fiscal austerity measures, and global finance ministers meeting in Washington later this week could agree on the amount by which they will boost the International Monetary Fund’s financial firepower to help supplement Europe’s rescue scheme.
The United States, which will not spend any more money of its own, yesterday threw its support behind commitments by other nations to boost the IMF’s financial resources, signalling greater satisfaction among Group of 20 nations with Europe’s efforts to resolve its debt crisis.
Oil futures recovered after falling yesterday on data which showed inventory continued to build in the United States and on worries that the euro zone debt crisis would curb economic growth and dampen demand for commodities including oil.
US crude was up 0.1 per cent at US$102.74 a barrel while Brent rose 0.3 per cent at US$118.30.
Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening slightly by two basis points. — Reuters