Wednesday, January 28, 2015

Asia equities slide as Fed remains steady on rates

Thursday 03.20 GMT. An equity sell-off swept across Asia after the US Federal Reserve pledged to remain patient on raising interest rates.

Hong Kong’s Hang Seng Index traded 1.3 per cent lower, while South Korea’s Kospi Composite fell 0.2 per cent and Tokyo’s Nikkei 225 contracted 0.1 per cent.

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The Shanghai Composite fell 1.6 per cent on reports that regulators could take yet more action against the margin lending that fuelled at 53 per cent rally last year.

Overnight the S&P 500 index fell 1.3 per cent to 2,002, after the Fed upgraded its assessment of the economy and signalled that it remained on course to raise short-term interest rates this year, making June the earliest likely date for a rise.

Nevertheless the yield on the 30-year note fell 10 basis points to 2.29 per cent  a fresh low suggesting that some investors see the Fed delaying any move.

“The reaction in the bond market was bizarre,” said Evan Lucas at IG, the spread-betting group. “The longer end of the curve moved down as bonds rallied, suggesting longer-term inflation expectations are falling which is not what was described in the statement.”

The Fed said it expected inflation to fall in the near term but then rise back towards 2 per cent as the jobs market improves.

In currencies, the New Zealand dollar tumbled 1.8 per cent after the central bank adopted a dovish stance, following four rate lifts last year. It has since regained 0.4 per cent to settle at $0.7346.

The Reserve Bank of New Zealand left interest rates steady at 3.5 per cent but the accompanying statement made it clear that the tightening cycle is over for now, as lower oil prices “will have a significant impact on prices and activity in New Zealand”.

The RBNZ also said the unjustifiably high exchange rate would “weigh on growth” and likely see “a further significant depreciation.”

“The high exchange rate, low global inflation, and falling oil prices are causing traded goods inflation to be very weak,” said Graeme Wheeler, RBNZ governor.

The Australian dollar fell 0.6 per cent against its US counterpart, as the RBNZ statement added pressure for the Reserve Bank of Australia to cut rates when it meets next week.

Sydney’s S&P/ASX 200 rose 0.2 per cent, led by financials, after the RBNZ statement.

In Japan, Abenomics was delivered another blow when December retail sales unexpectedly fell 0.3 per cent, pushing the annual gain down to 0.2 per cent. Economists were expecting a 0.3 per cent monthly rise and a 0.9 per cent annual gain.

“The headline was dragged lower by a 3.8 per cent month-on-month drop in fuel sales, but core spending was stagnant as well,” said Marcel Thieliant at Capital Economics.

Meanwhile, growth in the Philippines sailed past expectations in the final three months of 2014, accelerating to its fastest pace in five quarters thanks to agricultural output.

The economy grew at an annual pace of 6.9 per cent in the fourth quarter, rebounding from 5.3 per cent in the prior three months.

Analysts at ANZ said the figures indicated the Philippines had regained its footing. They anticipated 6.1 per cent growth this year, the same as 2014.

“The unexpected pullback in public spending throughout 2014 weighed on an otherwise robust environment in the Philippines,” they wrote. “Net exports beat market expectations as industrial production picked up over the year.”

In South Korea, Samsung Electronics said mobile revenue was down by 19 per cent in 2014  a reversal after several years of double-digit sales increases.

Overall sales fell 11 per cent year-on-year to Won52.7tn ($48.5bn) in the final three months of the year, while its operating profit was down 36 per cent to Won5.3tn. Samsung shares fell 0.2 per cent, in line with the Kospi.

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