Market Watch, December 7, 2009
Resource stocks were a major weak spot in the Asian stock markets on Monday after gold posted its first weekly loss since the end of October, but Japanese exporters extended their rally following the yen’s recent losses.
Japan’s Nikkei 225 closed 1.5% higher, South Korea’s Kospi Composite and the Shanghai Composite index each added 0.5% and Taiwan’s Taiex climbed 1.6%,.
But Australia’s S&P/ASX 200 fell 0.6%. In Hong Kong, the Hang Seng Index shed 0.8%.
"Across Asia, equity markets have begun the week mixed as a stronger U.S. dollar boosted exporters and the better-than-expected jobs report fueled hopes the U.S. consumer is on the mend," Ben Potter, a research analyst at IG Markets in Melbourne, said in a note to clients.
In Tokyo, the market was supported by gains in exporters after a sharp decline for the yen Friday. Isuzu Motors 7202ISUZF advanced 3.5%, while Sony SNE6758 gained 2.8% and Canon 7751CAJFF added 3.3%.
"The yen experienced its biggest weekly drop in 10 years and that helped exporters in Japan," said Brett McGonegal, a managing director at Cantor Fitzgerald. "Most major Japan exporters have a [U.S. dollar/yen] projection of anywhere from 95 down [to] 90, so these levels will not result in any big surprises," though the 86-yen level is cause for concern.
Friday’s unexpectedly strong U.S. jobs report provided "a nice groundswell for a rally across [part of] the region, and the dollar/yen action will most definitely augment the chances of a continuation of the rally," said McGonegal.
But the jobs data also led to some concern about the possibility of the Federal Reserve exiting its stimulus program sooner than expected, said Kwak Byoung-ryel at Eugene Investment & Securities in Seoul.
Japan Airlines JALSF9205 surged 7% as short-term investors were encouraged by a Nikkei report that the government was expected to guarantee about 700 billion yen ($7.8 billion) in loans and other funds provided by financial institutions to help rebuild its operations. See Asia Markets column on JAL.
Bucking the trend in Tokyo, Hitachi 6501HTHIF closed 3.3% lower with investors reluctant to buy the stock before the price for a new share issue was set. Late Monday, the company set the price at 230 yen, below Monday’s close of 238 yen. Last month, Hitachi said it would raise as much as 415.67 billion yen by issuing new shares and convertible bonds to fund spending.
Among the decliners were resources shares, which took a hit around the region as the recent rise in the U.S. dollar combined with a steep decline in gold to dent commodity prices.
In Australia, BHP Billiton BHPBHPLF fell 1.9% and Rio Tinto RIORTP closed down 0.4%.
Among gold names, Australia’s Newcrest Mining NCMNCMGF dropped 6% and Lihir Gold LGLLIHRF fell 4.8%, Sumitomo Metal Mining 5713STMNF declined by 2.3% while Hong Kong-listed shares of Zijin Mining 2899ZIJMF fell 5.1%.
A favorable U.S. nonfarm payroll report "resulted in elevated expectations of U.S. rate hikes," pushing down Hong Kong, the most sensitive market, analysts at the Royal Bank of Scotland said in a note to clients. "Whether the elevated expectations for U.S. rate hikes materialize or not, equity returns will become more concentrated in countries where earnings expectations are likely to be met — key amongst these are China, India, Indonesia and Korea," they said.
Elsewhere in the region, New Zealand’s NZX-50 shed 0.3% and Philippine shares fell 0.5%. In late trading, Singapore’s Straits Times Index was up 0.3%, and India’s Sensex lost 0.1%. Thailand’s markets were closed for a holiday.
In foreign exchange trading, the U.S. dollar was taking a breather after rising on Friday’s stronger-than-expected U.S. jobs data. The dollar was at 89.84 yen compared with 90.50 yen in late New York trade Friday. The euro was fetching $1.4875 compared with $1.4847, and was at 133.63 yen versus 134.29 yen. See Currencies column.
Some global investors may perceive the U.S. dollar at the current prices to be a good entry point for bigger gains, assuming the Fed would raise rates in 2010 because of economic improvements, said Richard Hastings, a consumer strategist at Global Hunter Securities. "The bigger question is whether there are enough USD bulls out there to overcome the prevailing bearish opinion regarding the economy and the USD."
But over the longer run, Danica Hampton, currency strategist at Bank of New Zealand, suspects "that relative growth prospects and diverging economic fundamentals will have a greater role to play in driving currencies in 2010."
"This means we may actually start to see the U.S. dollar benefit from upside surprises in U.S. data rather than fall due to rising risk appetite," she said.
Spot gold continued to face some selling pressure after a sharp decline in New York on Friday following a string of records in recent weeks. Spot gold traded as low as $1,153.60 per troy ounce. December gold was down $14.20 at $1,154.60 on Globex.
January crude oil was trading at $75.66 a barrel on Globex, up 19 cents from the New York close.
Japanese government bonds were weighed by improved risk sentiment following Friday’s U.S. jobs report. Mizuho Securities chief market analyst Tetsuya Miura said Japanese bonds could weaken even more if U.S. data continued to surprise on the upside. The December futures contract was unchanged at 139.91 points.