Asian shares, Nikkei recover as soft US data sees QE staying on

TOKYO (Reuters): Asian shares recovered but the Dollar stayed pressured on Friday after lackluster US data eased concerns about an early end to the Federal Reserve’s strong stimulus program which has sharpened investor appetite for risk.

Global markets rose overnight as US GDP grew a slightly less-than-expected annualised 2.4% in the first quarter, new jobless benefits claims rose in the latest week, and pending home sales grew far less than expected in April, pointing to a fragile economy which still requires support from monetary policy.

MSCI’s broadest index of Asia-Pacific shares outside Japan steadied from the previous day’s drop to a six-week low. With a fall of about 4% so far in May, the index was set for its worst monthly performance in a year. Australian shares inched up 0.1% after touching their lowest in nearly two months the previous session while South Korean shares rose 0.3%.

“The market is slowly gathering upside momentum, helped by a view that the likelihood of the US Federal Reserve abruptly pulling its stimulus program is small,” a market analyst at Sinha Investment Corp, of Seoul shares Han Beam-ho said. Bourses in Shanghai, Hong Kong, Jakarta and Manila Philippines were lower.

Japanese equities also staged a rebound after tumbling more than 5% to a five-week low on Thursday as exporters took a hit from the Dollar’s fall against the Yen. The Nikkei stock average gained 1.6% after sliding sharply last week from a 5-1/2-year peak.

Analysts said the recent correction presents an opportunity for investors to re-enter the market at better levels. “It’s not a bear market, it’s just a correction,” a strategist at Tachibana Securities Kenichi Hirano said. “The index has broken below its 25-day moving average, and it’s a comfortable level to buy back.”

The Dollar fell to a three-week low of 100.46 Yen on Thursday and its index, measured against a basket of six key currencies, also touched a three-week low, having hit its highest since July 2010 of 84.498 just a week ago. The Dollar index was stable on Friday and the Dollar rose 0.3% against the Yen to 101.02.

The Nikkei had raced ahead and overshot even relative to the rapid rate of Yen selling, which was inspired by expectations for bold reflationary measures by the Bank of Japan, so corrections to Japanese stocks may be steeper than the change in currencies. In the past week, the Nikkei shed 15% compared to the Dollar’s 3% drop against the Yen.

“Given the fact that markets embraced a sliding Yen as a sign that central bank intervention continued to offer a sizable tailwind for equities, we have to raise the red flag on what if it doesn’t, at least until it does again?,” Miller Tabak & Co in New York Chief Economic Strategist Andrew Wilkinson said in a note to clients.

“We must acknowledge that there are several headwinds brewing that could trip up investors.” The heightening volatility in Japanese equities and the yen had come hand-in-hand with the surge in benchmark 10-year Japanese Government bond yields to a one-year high.

“The jump in JGB yields was partly in line with rising US yields but it also underscored the risk of putting too much confidence in the BOJ’s aggressive bond buying plan alone to contain increases in Japanese yields,” Dai-Ichi Life Research Institute chief economist Hideo Kumano said.

“The Japanese Government’s growth strategy plan due to be unveiled early next month will play a significant role in determining market trends going forward,” Kumano said. The Euro recovered the US$ 1.30 level and reached a three-week high on Thursday, encouraged by the bigger-than-expected improvement in the European Commission’s economic confidence survey, showing a pick-up in morale in the euro zone’s five largest economies.

 “Commodities tend to move in tandem with the Dollar, so if speculation about an eventual shift in the Fed’s stance pushes US yields higher and the Dollar rises, that would generally cap commodities prices,” Sumitomo Corp’s energy division in Tokyo general manager Bob Takai said.

The US crude futures were steady around US$ 93.65 a barrel and Brent was up 0.1% to US$ 102.28. Spot gold was up 0.3% to US$ 1,418.11 an ounce, helped by the Dollar’s soft tone.