Asian shares up cautiously on hopes for short shutdown

Thursday, 3 October 2013 00:00 -     - {{hitsCtrl.values.hits}}

Reuters: The US dollar treaded water and most Asian stock markets edged up on Wednesday as investors appeared hopeful the first partial US government shutdown in 17 years will be short-lived and not have a broader impact on the economy. However, one immediate impact is a drop-off in US economic data at a time when the Federal Reserve has already muddied expectations on when will it start reducing its stimulus. The failure of Congress to agree on a bill that funds government operations meant up to one million workers were put on unpaid leave, as Democrats and Republicans fight over President Barack Obama’s healthcare programme. On Tuesday, a survey by the private Institute of Supply Management (ISM) showed robust US manufacturing activity, with expansion at the fastest pace in almost 2-1/2 years. But with the government shutdown, the news didn’t have a big impact on Asia. The MSCI’s broadest index of shares outside Japan up 0.4%. US S&P futures eased 0.1% after the cash index advanced 0.8% on Tuesday. Japan’s Nikkei, the most expensive in Asia based on price-to-earnings ratios, came in for profit-taking and was down 1.2%. Korean stocks were up 0.4% and Indonesian stocks gained 1.2%. China markets are closed until Tuesday for holidays. “Markets are taking it one day at a time with a near-term impact unlikely and any prolonged government deadlock only increases the likelihood of a delay in US tapering,” said Kenneth Akintewe, a Singapore-based portfolio manager at Aberdeen Asset Management. If anything, the U.S. shutdown offered a brief window of opportunity to investors looking to cut some of their emerging market exposure, particularly if the US dollar fell further. Citi strategists also believe shutting down the US Government reinforces the chance that QE tapering will be delayed. Also, they say an additional 10-15 basis points drop on the 10-year Treasuries to 2.50% “would not be inconceivable”. Yields on 10-year bonds have fallen by nearly 40 basis points from a September high of nearly 3%, erasing a large chunk of the rise from May 22, when the Fed first hinted at withdrawing its policy easing. On Wednesday, 10-year US Treasury futures were flat on the day. While that drop in US yields has widened the gap in the favour of emerging market debt, recent flows suggests investors are still wary of buying Asian bonds, instead preferring to venture cautiously into shorter-dated emerging market bonds or even staying in cash. Emerging market bond funds saw their first weekly inflow in the week ended September 25 after 17 straight weeks of outflows, during which more than $25 billion was withdrawn. Buying relatively safe haven stock markets of Korea and bonds with short maturities rather than venturing into the riskier, heavily foreign-owned markets of Indonesia and India still remained the flavor of the day, according to a trader. Aberdeen’s Akintewe said that despite the drop in US yields, “there is still a big likelihood of a steepening of the U.S. yield curve and as a result, investors don’t want to be aggressive about taking duration risk at this stage.” In currencies, the euro eased to $1.3515, having hit an 8-month high of $1.3589 in European trade on Tuesday, ahead of a European Central Bank policy meeting later in the day where it is widely expected to stick to its policy course. The dollar stood at 97.80 yen after falling as low as 97.65 yen on Tuesday. In commodity markets, gold hit a two-month low below $1,300 an ounce. Copper futures CMCU3 dipped 0.2% after posting its biggest quarterly gain since March 2012 thanks to steadying global growth. Oil prices softened as a result of the government gridlock with the November contract down 0.23% to $107.69 per barrel.