Asian shares edge up; ECB decision awaited

TOKYO (Reuters): Asian shares inched up in subdued trade on Thursday after Wall Street ended higher, but political uncertainty in the United States and worries about weakening global economic growth kept many investors on the sidelines.

Financial spreadbetters expect London’s FTSE Frankfurt’s DAX and Paris’s CAC to dip marginally when they open, with investors awaiting news from the European Central Bank’s first policy review of the year.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3%, while Japan’s Nikkei average eased 0.1%.

“There is no new news to buy, and there are no fresh triggers to sell. Investors are staying on the sidelines,” said Yasuo Sakuma, Chief Investment Officer at Libra Investments.

China’s benchmark Shanghai Composite and the blue-chip CSI 300 climbed 0.5% and 0.6%, respectively, taking positive cues from financial firms’ profits and the approval for a new technology board in Shanghai. Hong Kong’s Hang Seng index rose 0.3%.

On Wednesday, Wall Street ended slightly higher after a spate of upbeat earnings reports, including International Business Machines, but lingering concerns about trade tensions and the longest US government shutdown ever limited the advance.

White House Economic Adviser Kevin Hassett said in a CNN interview the US economy could see zero growth in the first three months if the partial government shutdown lasts for the whole quarter.

Japan’s manufacturing growth stalled in January as export orders fell at the fastest pace in 2-1/2 years, a preliminary business survey showed Thursday, offering the latest sign of slower growth hitting a major developed economy.

More companies warned of weakening demand in China, including South Korea’s SK Hynix Inc, the world’s second-biggest memory chipmaker, and Hyundai Motor.

Analysts at Capital Economics warned that China’s economic slowdown looks set to be of a similar scale to that in 2015-16, though there are some significant differences so far, most notably less downward pressure on the yuan and no signs of major capital outflows.

“Against a backdrop of various concerns about other economies, weakness in China adds to reasons to expect a marked global slowdown,” they wrote in a note.

“Since China makes up 19% of the world economy, the slowdown this year compared to last will knock 0.2%age points off global growth.”

President Donald Trump said on Wednesday that the United States was doing well in trade talks with China, saying that China “very much wants to make a deal.”

But sources familiar with the talks say the two sides are still far apart on key, structural elements critical for a deal.

“Above all, (investors) are wary there’s a possibility that the economic slowdown will go on amid the uncertainty over the US-China trade tension,” said Harumi Taguchi, principal economist at IHS Markit.

“In such circumstances, the likelihood is becoming a little bigger that a situation remains where it’s hard to buy stocks and the yen is likely to strengthen.”

 

Markets await direction from central banks

The ECB is widely expected to stay on hold at a policy meeting that ends later on Thursday, but may acknowledge a sharp slowdown in growth, raising the prospect that any further policy normalisation could be delayed.

The ECB’s meeting will come a day after the Bank of Japan cut its inflation forecasts on Wednesday but maintained its massive stimulus program, with Governor Haruhiko Kuroda warning of growing risks to the economy from trade protectionism and faltering global demand.

The US Federal Reserve will hold its first policy meeting of 2019 next week, with investors hoping for more clues on how patient it will be before raising interest rates again. Fed officials have left little doubt in recent weeks that they want to stop raising rates – at least for a while.

In currency markets, the dollar was last off 0.1% against the yen, changing hands at 109.70 yen per dollar. , also in thin trade.

The greenback hit a year-to-date high of 110.00 yen against the Japanese currency after the BOJ kept its policy on hold the previous day.

Sterling hit a fresh 11-week high against the dollar, rising to $1.3094, on bets that a no-deal Brexit can be avoided if parliament exerts greater control over the process.

The euro was basically flat at $1.1383. It has lost more than 1.5% since climbing to a three-month high of $1.1570 on 10 January.

The Australian dollar suffered a setback when a hike in mortgage rates by one of the country’s major banks added to the case for a cut in official rates, even as domestic job data showed a still solid labour market.

The Aussie dollar skidded to $0.7100, unwinding all of a data-inspired jump to $0.7168.

The yield on benchmark 10-year Treasury notes fell to 2.746%, compared with its US close of 2.755% on Wednesday.

In commodity markets, oil prices declined on Thursday amid lingering concerns over slowing global economic growth that may limit fuel demand and after a surprise build in US crude inventories.

US West Texas Intermediate (WTI) crude futures fell 0.5% to $52.38 a barrel, while Brent crude futures were last down 0.4% at $60.87.

Gold held steady, supported by a softer dollar. Spot gold was last traded at $1282.10 per ounce.