Asian Shares Lower; Resource Stocks Take Beating

Asian share markets Friday were being dragged lower by overnight weakness on Wall Street with resource stocks selling off on weakness in gold and base metal prices.

"The momentum appears to be petering out in recent weeks as U.S. economic numbers are still showing signs of pockets of weakness; there are also concerns on the withdrawal of economic stimulus and the potential destabilising effects," said OCBC Investment Research in Singapore.

ANZ bank senior economist Khoon Goh also said that year-end "position squaring looks to be gaining a head of steam."

"With good gains made for the year, it is only natural to book profits and start next year all square and with a clean slate," Goh said.

Hong Kong's Hang Seng was down 0.8%, China's Shanghai Composite fell 1.7%, Australia's S&P/ASX 200 was down 0.3% and Japan's Nikkei 225 was 0.6% lower. South Korea's Kospi Composite lost 0.2%, Taiwan's main index was 0.3% lower, while New Zealand's NZX-50 bucked the trend to be up 1.0%. Dow Jones Industrial Average futures were 29 points higher in screen trade.

Resources stocks were lower across the region, after a sharp fall in base metal and gold prices Thursday. Spot gold was recovering slightly in Asia, at $1,106.40 per troy ounce, up $9.30 from the New York close after falling over $30 Thursday on the U.S. dollar's strength.

Gold tumbled alongside other commodities Thursday, amid increased risk aversion after Standard & Poor's downgraded Greece's sovereign risk rating.

"Long liquidation and profit-taking may be the dominant factors driving gold to year-end," said HSBC analyst James Steel.

In Australia, BHP Billiton was down 1.9% and Newcrest Mining lost 3.5%. In Tokyo, Inpex was down 2.3% and Sumitomo Metal Mining fell 3.1%.

Telstra, Australia's largest telecommunications company, was down 3.7% after downgrading its revenue guidance for the year to June 30 to "flattish" from "low single digit" growth.

Japanese banks were lower on profit-taking after recent gains led by easing concerns about stricter global banking rules with Mizuho Financial Group off 4.3%, and Sumitomo Mitsui Financial Group 3.7% lower. The broader Toyko market was also weighed by concerns over a stronger yen as the euro and the U.S. dollar dropped against the Japanese currency.

Korean shares were dragged down by financial stocks amid renewed global credit concerns, said You Seung-min at Samsung Securities. He added: "the (U.S.) dollar is clawing back (against major currencies) on a technical rebound after falling for the last few months...The dollar is expected to remain strong for a while, and this will likely weaken appetite for risky assets, including Korean stocks."

KB Financial was down 3.3% and Shinhan Financial lost 2.4%. Ssangyong Motor sank 14.9%, hurt by the company's capital reduction plan.

In China, sentiment was being dented by concerns over tight liquidity. "I believe the markets will resume their upward trend in January, when bank loans become more available. Till then, the Shanghai index is likely to consolidate in the 3100-3300 range," said Haitong Securities analyst Zhang Qi.

Among other regional markets, Singapore's Straits Times Index was 0.8% lower while Philippines shares were down 1.0%. Markets in Indonesia and Malaysia were closed today.

In foreign exchange markets, the euro was clawing back some of its losses against the dollar on buying by Asian speculators after its earlier falls.

The euro was at $1.4390 from $1.4352 in late New York trade on Thursday. Against the yen, the euro was at Y128.88 from Y129.14 in New York, after earlier touching Y128.78, its lowest level since Nov. 27. The dollar was at Y89.58 from Y90.00.

The Bank of Japan, as expected, left its policy rate unchanged at 0.1% as it experiments with alternative ways of getting financial institutions to loosen their purse strings.

The central bank, however, said it won't tolerate changes in the nation's consumer price index at or below 0%, apparently raising the tone of its rhetoric against deflation. Traders are now focused on what Gov. Masaaki Shirakawa says during a news conference from 0630 GMT about the possibility of further monetary easing, after the BOJ earlier this month took steps to combat deflation, including offering up to Y10 trillion in short term funds for the market.

UBS Securities strategist Eiji Dohke said: "If the yen rises sharply again or economic indicators start showing bad results, the market will expect the BOJ will be forced to take another easing action."

The lead March Japanese government bond futures was up 0.22 at 140.01, while the benchmark 10-year yield was unchanged at 1.245%.

Nymex January crude oil futures were at $73.04 per barrel, up 39 cents from the New York close.

India Forex Reserves Slightly Down

Friday, the Reserve Bank of India said in a report that the international reserves stood at US$ 279.910 billion as on September 25, down from US$ 280.770 billion as on September 18.

At the same time, foreign currency assets decreased to US$ 263.498 billion from US$ 264.353 billion last week. The gold reserves amounted to US$ 9.828 billion, unchanged from last week.

Meanwhile, nation's reserve position with the International Monitory Fund stood at US$ 1.364 billion, down from US$ 1.365 billion last week.

Yen fresh buy signal

What's Behind the Gold Price Surge

After spending the summer in the doldrums, the price of gold has started to perk up in September -- enough to push the yellow metal near the $1,000-per-ounce mark. Last week, gold jumped 3.6% in just two days, peaking at $997.80 an ounce on Sept. 3. By the end of the week, it had pulled back slightly -- the December futures contract on the New York Mercantile Exchange settled $1.60 lower, at $996.10 on Sept. 4.

There's no shortage of rationales that investment strategists and economists have offered for the biggest price spike in gold in six months -- from increased purchases by China's central bank to inflation fears -- but these seem like mostly after-the-fact justifications for what's occurred, according to Philip Klapwijk, chairman of Britain-based metals consulting firm Gold Fields Minerals Service [GFMS].

U.S. dollar falls to 2009 low vs euro

The U.S. dollar sank to its lowest this year against the euro on Monday as a rosy global economic outlook fueled buying in stocks, helping lift gold above $1,000 an ounce and oil to more than $70 per barrel.

The U.S. currency, seen as a safe haven in times of uncertainty, tends to fall when investors' risk appetite increases.

Renewed concerns about the status of the dollar as the world's reserve currency sparked by a United Nations agency report on Monday and news out of China expressing concern about printing money to fund Treasury purchases have also weighed on the dollar. For the UN report, click on [ID:nL7696421]

"The dollar has been beaten down by several news headlines -- with the UN report and the China news," said Jacob Oubina, currency strategist, at Forex.com in Bedminster, New Jersey.

Market Wire Update: Day Of Divergence

n the afternoon U.S. session the markets saw Usd/Cad reverse course ahead of the other majors, and repay all of the pips stolen in the short-dollar rampage from earlier in the European session. The other commodity based mover, Aud/Usd has yet to reverse course, nor as yet have the European pairs.

Forex traders saw divergence in trade on Tuesday, between the pattern of no moves in Europe and mainly U.S. based breaks that we have seen in trade for over a month. Today bought only European based moves that did nothing more than just hang on in Wall Street trade. The second divergence was between equity percentage moves and the dollar. The trend has been for the major pairs to be lead by equity trade, something that has been in place for six months. Although one swallow does not make a summer, this is the first day in what seems like an eternity that the major pair moves have not been dominated by equity market trade.

Forex report: Dollar kicks around in the dust

Did demand for the dollar just suddenly drop to the wayside as the summer officially ended or did investors simultaneously desert the sinking ship? Either way, the dollar index, which tracks the greenback’s value versus a basket of currencies of its most commonly traded partners, fell right through its early August low point achieved when risk appetite was last served up to entice investors. Upgrades for several key U.S. companies and industries are lifting equity prices, provoking more recovery discussion and reminding investors on the near anniversary of the failure of Lehman Brothers Holdings that if the worst is past, then better times are surely ahead.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc

During the past couple of weeks, something has been brewing in the gold market as its price has moved ever-higher regardless of the direction of the dollar. Typically investors have bought gold for its safe haven qualities during times of uncertainty. The groundswell in optimism over the prospects for the price of gold have coincided with suspicions of better prospects for global industrial activity as predicted earlier by analysts at Goldman Sachs.

As the dollar slumped to $1.45 versus the euro currency today, it was becoming apparent that metals prices around the world were starting to rise and included gains for copper, lead, nickel as well as the price of crude oil. The house of JPMorgan also lifted the prospects for shares at industrial conglomerate, General Electric whose share price has surged 5% this morning. In both cases (industrial activity and prospects for GE) investors have clearly returned to work today with a clean slate and are prepared to take a fresh look at the world’s economic prospects for 2009 and into next year. The pessimism marked by weakness in Asian markets over recent days has clearly been tossed into the trash can.

The one piece of the jigsaw that is missing today is the typical rise in bond yields. The 10-year U.S. note yield at 3.4% is hardly any distance from last Monday’s 3.3% when stocks slid 2% to begin a week of worries about the economy. Although there is no need to raise interest rates especially given an ongoing rise in the rate of unemployment, the step up in risk appetite usually detracts from funds flow to the bond markets and acts to sober-up a yield curve that’s become too flat-footed. With notes unchanged today, fixed-income investors are not taking much notice of the rally for stocks.

Today, earnings are back in focus, economic activity is back in focus and risk aversion has been assigned to a seat in the stands after gracefully bowing off the field. Investors seem to no longer need the sanctity of the dollar a year on from the failure of Lehman Brothers.

British industrial and manufacturing activity both rose during July serving to increase optimism in a recently beaten down British pound. It rose to $1.6555 today despite less rosy news from the British Retailers Consortium who said that retail sales fell on a quarterly basis on the back of ongoing subdued signs from consumers.

In Germany the industrial data was actually worse than expected. Investors keen to see a resurgence of industrial output in July of as much as 1.6% were disappointed by a 0.9% decline. Still, the overall negative tone to the dollar allowed for the euro to rally and lifted it to ¥133.79 against the Japanese yen.

The dollar also fell against the yen to ¥92.19. An industry group noted that August bankruptcies in Japan declined for the first time in three months, possibly boosting the outlook for the Japanese recovery. During the last week the rate charged by cash lenders to borrowers of short-dated loans fell to the lowest among the G7 nations. The three-month U.S. dollar Libor interbank borrowing rate fell to 0.3% undercutting the rate on the Swiss franc for the first time since last November.

Both Australian and Canadian dollars were off to the races this morning. The Aussie dollar was most obviously in the saddle perhaps given its yield advantage and arguably the greater likelihood that its central bank would not hesitate to raise short-term interest rates before other nations do. The Aussie unit rose to 86.54 U.S. cents this morning. It benefits from rising raw material prices and increasing optimism for industrial activity. The Canadian dollar also rose to buy 93.22 U.S. cents on the back of increased demand for base metals and crude oil.

There are still question-marks over economic prospects ahead. Most notably is what independent lead consumers might take to shape the recovery. So far it’s been the indirect actions from governments’ stimulus that has prodded consumption to respond. At some point, this weaning process needs to come to an end.