Asian shares firm, euro wilts as ECB seen on cusp of QE

Wednesday, 27 August 2014 00:00 - - {{hitsCtrl.values.hits}}

TOKYO (Reuters): Asian shares held firm while the euro hit one-year lows on Tuesday as investors increasingly expect the European Central Bank to expand liquidity as soon as next week to boost the sagging euro zone economy. Markets were still coming to terms with comments from ECB chief Mario Draghi late last week that the central bank was prepared to respond with all its “available” tools should inflation drop further. “Draghi’s speech marked a turning point in ECB rhetoric... He also confirmed that beyond liquidity injections through the targeted longer-term refinancing operations (TLTRO) and outright asset-backed securities (ABS) purchases, the ECB was ready to do more if necessary,” Philippe Gudin, an economist at Barclays, said in report.

European shares are expected to step back after sharp gains on Monday, with Germany’s DAX and France’s CAC 40 both seen falling 0.3% while Britain’s FTSE is seen up 0.5% in catch-up trade after a market holiday. MSCI’s dollar-denominated index of Asia-Pacific shares outside Japan was 0.04% firmer, led by 0.3% gains in South Korean shares. Japan’s Nikkei average bucked the trend, shedding 0.5% on profit-taking. The mood in the market was buttressed by the S&P 500, which briefly topped the 2,000 mark for the first time in history on Monday, and closed up 0.48% at 1,997.92. European stocks led the rally in global equities overnight, with many country and regional indexes climbing more than 1%, as investors grew convinced that the ECB could adopt quantitative easing as soon as next week. On Wall Street, the biggest winners were financial shares, seen as the main beneficiary of any cheap money from the ECB at a time the U.S. Federal Reserve is preparing to end its bond-buying drive. Speculation that the ECB could buy debt of euro zone countries drove down yields on bonds from Germany, France, Italy, Spain, Portugal and Ireland and others to all-time lows. German 10-year yields hit a record low of 0.926%, before pulling back to 0.95%. “I suspect the ECB will announce the outline of its policy next month and will start actual buying in October,” said a European bond trader at a European brokerage. The euro also fell to $1.31785 in early Asian trade, its lowest level since early September last year, with a test of the $1.30 mark seen as inevitable. It last stood at $1.3199. Germany’s Ifo business climate index published on Monday showed business confidence sagged for the fourth straight month, further fanning expectations of major asset purchases by the ECB. In contrast, the U.S. dollar was broadly firm, with its index against a basket of currencies hitting a one-year high of 82.613. Against the yen, the dollar stepped back slightly to 103.90 yen, but still not far off its seven-month peak of 104.49 yen hit on Monday. In the face of the greenback’s broad strength, the New Zealand dollar dropped to a six-month low of $0.8311, hit by New Zealand’s surprisingly large trade deficit.

Gold ticks up but stuck near two-month low on firm dollar

SINGAPORE (Reuters): Gold regained some strength on Tuesday on bargain hunting but still held near its weakest level in two months as a firmer U.S. dollar and rallies in equities undermined the metal’s appeal as an alternative investment. Tensions between Russia and Ukraine as well as violence in the Middle East have failed to stir up demand from investors, although some jewellers purchased bullion after prices dropped below $1,300 an ounce.

Cash gold added 0.22% to $1,279.11 an ounce by 0328 GMT, still not far above a two-month low of $1,273.06 hit on Aug. 21. “We are seeing some physical demand but it’s not enough to make the market higher. I think the U.S. dollar is a bit too strong. $1,240 to $1,250 should be very good support levels,” said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. “China bought too much last year, and also this year, gold (price) is a bit higher. I think if we go down lower, we will see some demand.” Spot gold may rebound moderately to a resistance at $1,283 before testing a support at $1,273 per ounce, as indicated by its wave pattern and a Fibonacci projection analysis, according to Reuters market analyst Wang Tao. China’s net gold imports in July from main conduit Hong Kong tumbled to their lowest since June 2011 because the country already has ample supply from shipments in earlier months, while jewellers there are waiting for lower prices. The country’s crackdown on corruption could have also sapped demand in China, which overtook India as the biggest consumer of the precious metal last year with imports topping 1,000 tons. US gold was steady at $1,280.10 an ounce. SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.37 percent to 797.09 tons on Monday from 800.08 tons on Friday. “We’ve been selling some gold but a bank holiday in London yesterday slows us a little,” said a physical trader in Singapore. “There are bargain hunters around, but I guess the physical market is still quiet.” Premiums for gold bars in Hong Kong rose to 70 cents to $1.10 to the spot London prices, higher than the 50 cents to $1.00 quoted late last week. In Singapore, premiums were steady at 80 cents to $1 an ounce to spot London prices.