Equities dip as Asia awaits central bank meetings
HONG KONG – Most equities markets eased Tuesday, October 27, after the previous day's rally while the dollar slipped against its major peers as investors look ahead to key central bank meetings in the United States and Japan this week.
The upbeat outlook fueled by China's surprise rate cut on Friday gave way to concerns about the world's number 2 economy, with the country's leaders gathering in Beijing to discuss their next 5-Year Plan.
However, Shanghai ended on a high, with defense and technology shares rallying on news that a US warship had sailed close to artificial islands Beijing is building in disputed South China waters.
Global stocks have enjoyed a healthy run-up this month – after suffering their worst quarter in 4 years during July-September – and analysts say further easing measures could spark a continued advance.
The Federal Reserve begins its two-day meeting later Tuesday, with expectations growing that it will hold off hiking interest rates, with many tipping no increase until early next year.
While the US central bank said earlier this year that it expected to tighten monetary policy before 2016, the summer's turmoil on global markets and a slowdown in the world economy have forced policymakers to stay their hand.
Many economists now are predicting a lift-off early in the new year, pushing the dollar lower against the yen and euro.
In the afternoon the greenback bought 120.71 yen compared with 121.07 yen in New York, while the single currency was at $1.1070 against $1.1059 in US trade. The euro was also at 133.46 yen from 133.89 yen.
The yen edged up ahead of a Bank of Japan policy meeting this week where it faces pressure to unveil fresh stimulus following a string of below-par economics data.
Calls for more measures have grown since China's interest rate cut last week and hints from European Central Bank that it could widen its own easing program in December.
"The Fed and the BoJ meetings this week are pivotal events that will determine whether this rally can go any higher," Angus Nicholson, an analyst at IG Markets Ltd. in Melbourne, told Bloomberg News.
"If we see the Fed push back raising interest rates toward 2016 and the BoJ step up stimulus, that will have a big positive impact on equities."
Early gains in emerging market currencies mostly disappeared in the afternoon.
The Australian dollar edged down 0.11%, Indonesia's rupiah lost 0.07% and the Indian rupee was 0.02% off, while the Malaysian ringgit tumbled 1%.
However, South Korea's won gained 0.27% and the Taiwan dollar added 0.44%.
Emerging market units had been hammered this year on talk of a 2015 move as investors remove their cash to the United States in search of better, safer returns. But they have enjoyed a recovery this month as talk of a delay has mounted.
Most equities markets saw losses as investors cashed in on recent gains, with Tokyo down 0.90% by the close, Sydney dipped 0.03% and Seoul 0.17% off.
Hong Kong ended up 0.11% and Shanghai recovered from a morning dive to end 0.14% up at a new two-month high.
In Shanghai, aerospace and maritime-linked equities advanced on news the USS Lassen had entered a disputed part of the South China Sea – a move Beijing called a threat to its sovereignty.
Aerosun Corp, which makes parts for the aviation industry, surged 10%, as did Aerospace Communications Holdings Group.
"Military tension in the South China Sea is always a hot issue and the market is quite sensitive to the related news flow," said Wei Wei, an analyst at Huaxi Securities Co.
"Defense stocks are good bets on the theme."
Market-watchers are keeping tabs on Beijing, where China's Communist Party is holding its Fifth Plenum meeting to hammer out policies against a backdrop of the slowest economic growth in a quarter of a century.
The gathering will be closely watched to see if it reveals any new measures to open up China's economy, a key driver of global expansion. – Rappler.com