Asian shares fall on growth worries despite cuts

Saturday, 7 July 2012 00:00 -     - {{hitsCtrl.values.hits}}

Reuters: Asian shares slipped on Friday, taking their cue from falls overnight in global stock markets.

Sentiment stayed cautious despite new stimulus steps taken by three major central banks, with the focus now on U.S. jobs data due later in the day.

The U.S. jobs report will offer clues about the extent of damage the euro zone’s debt crisis is inflicting on the U.S. economy and whether the Federal Reserve might also attempt more monetary stimulus.

Some market participants cautioned that Thursday’s firm private U.S. employment data could dampen such hopes.

Commodities fell as monetary easing on Thursday by the European Central Bank, the Bank of England, and the People’s Bank of China underscored global concern at a deteriorating world economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.6 percent, and Japan’s Nikkei average shed 0.4 percent. .T

Hong Kong .HSI and Shanghai shares .SSEC fell 0.4 percent and 0.3 percent respectively, dragged lower by the banking sector on worries Beijing’s cut in interest rates will further erode net interest margins.

China surprised markets with its rate cut, coming just four weeks after a previous rate cut and ahead of economic data next week including second-quarter gross domestic product - feeding fears the outcome will be weaker than earlier expected.

Vice Premier Wang Qishan said in comments published late on Thursday that China will have difficulty meeting its 10 percent trade growth target this year. The trade data, due out on July 10, were likely to show exports grew 9.9 percent from a year ago as imports grew 12.7 percent.

“There are two factors that led to the move - slowing growth and cooling inflation, and further monetary stimulus is likely soon as China seeks to bring the economy to a comfortable level in time for a political leadership change in the fall,” said Chiyuki Shiraiwa, economist at SMBC Nikko Securities.

“China moved in tandem with other central banks as it probably did not want to be seen as falling behind the curve,” she said, adding that previous measures were already bearing fruit, including in infrastructure and housing related areas.

Beijing cut the benchmark one-year lending rate by 31 basis points to 6 percent and the one-year deposit rate by 25 basis points to 3 percent.

It also lowered the floor for lending rates to 70 percent of benchmark rates from 80 percent previously which analysts said was aimed at stimulating borrowing by creating a more competitive environment.

After slumping on the ECB rate cut, the euro remained under pressure, falling 0.1 percent to $1.2376 and closing in on its lowest level since June 1 of $1.23638 hit on Thursday.

The euro stayed near its record lows against the Australian dollar of A$1.2015 and against the New Zealand dollar of NZ$1.5366 marked after the ECB rate decision.

European shares slipped from two-month highs to end lower on Thursday, weighed by comments from ECB President Mario Draghi about the weak economic outlook and a lack of any indication that the ECB might hand out more easy money.

“We expect to see fresh 2012 lows in the EUR/USD as the fundamental outlook for the region turns increasingly bleak,” said David Song, currency analyst at DailyFX.

The BoE announced on Thursday it would buy 50 billion pounds of assets with newly created money while the ECB cut its main rate by 25 basis points to a record low of 0.75 percent and reduced its deposit rate, a floor for the money market, to zero from 0.25 percent.

But it refrained from taking more dramatic steps such as resuming purchases of troubled euro zone government bonds or flooding banks with fresh liquidity.

With investors less than convinced the latest central bank moves will drive down borrowing costs of highly indebted countries, Madrid was forced to pay the highest rates in over seven months to borrow 10-year funds at an auction on Thursday.

The sale, which nevertheless drew solid demand, was the first test of investor sentiment since European leaders agreed last week to allow the bloc’s bailout funds to buy bonds in the secondary markets and directly recapitalise ailing banks.

With the return of risk aversion, Asian credit markets weakened, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 6 basis points.

U.S. crude futures fell 0.7 percent at $86.64 a barrel and Brent fell 0.8 percent at $99.93. London copper was down 0.5 percent at $7,655 a tonne.