Asian shares, Euro on defensive on growth, Cyprus worries

Saturday, 23 March 2013 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Asian shares and the Euro were pressured on Friday by fears Cyprus may default on its debt, while deteriorating Euro zone economic activity further underscored the troubles ailing the region.

The MSCI’s broadest index of Asia-Pacific shares outside Japan, inched down 0.1%, weighed by a 0.3% drop in Australian shares with worries about the stability of the Australian Government after a leadership crisis hurting sentiment. South Korean shares opened down 0.1%.

“The main risk is that equity markets have come too far too fast and that investor sentiment may have become too optimistic,” Barclays Capital said in a research.

“However, we expect any correction to be contained given persistent fundamental support for equities: Continued policy support, the low risk of a cyclical downturn and attractive valuations relative to fixed income.”

European shares dropped to a two-week closing low on Thursday, while crude oil and the Euro fell on concerns over a banking crisis in Cyprus. The safe-haven gold rallied to its highest in almost a month and US Treasuries and German Government bonds also advanced amid the heightened risk aversion.

The European Union gave Cyprus till Monday to raise the billions of Euros it needs to secure an international bailout or face a collapse of its financial system that could push it out of the Euro currency zone.

The mood was further soured by dismal Euro zone data, which offset upbeat US reports on housing, future economic activity and business conditions in the mid-Atlantic region and improving Chinese factory output.

Germany, the region’s leading economy, showed signs of fatigue and French businesses turned in their worst performance in four years in March. France, the Euro zone’s second-biggest economy, likely fell into a recession.

“While we expect a constructive solution to emerge in the coming days, EUR/USD is likely to continue to face headline risk as capital controls will likely need to be imposed once banks re-open. There is also near-term risk for the Euro from softer economic data,” strategist at BNP Paribas Vassili Serebriakov said. Japan’s Nikkei stock average opened down 1.1%, after hitting a 4½-year high on Thursday.

The Dollar stabilised against the yen after falling more than 1% on Thursday when investors trimmed their bearish bet on the Japanese currency after the new Bank of Japan Governor played down the chances of an emergency meeting.

BOJ Governor Haruhiko Kuroda, told his inaugural news conference on Thursday that the bank was ready to use all means available to beat deflation. He stopped short of suggesting a possible meeting ahead of the scheduled 3 and 4 April policy meeting.

The dollar traded at 94.90 Yen on Friday, off Thursday’s low of 94.54 Yen. The Euro steadied around US$ 1.2904, holding off a four-month low of US$ 1.2844 hit on Tuesday. The US crude futures rose 0.2% to US$ 92.62 a barrel.