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Fed reassurance, earnings lift shares

Apr 26 2012 08:36 Reuters

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Tokyo - Asian shares rose on Thursday, retaining positive momentum as the Federal Reserve reassured markets that it will keep its very accommodative stance to support growth, while optimism grew over strong quarterly corporate earnings.

Along with the Fed's assurance that its very easy monetary policy will be kept in place as long as needed, US stocks rallied on Wednesday after Apple reported quarterly profits nearly doubled.

Apple shares climbed nearly 9%, giving the Nasdaq its biggest gain of the year, and helping boost tech-heavy Asian markets such as Taiwan and South Korea.

About 75% of the 200 companies in the S&P 500 that have reported results so far have exceeded expectations, while European shares also rose on strong earnings results. But there was some skepticism that Asia may not see as big a gain as in overnight US and European markets.

"The main factor currently is the firmness in US markets, but in the end, it's Europe and China that hold key to whether markets can seek more upside," said Xiao Minjie, chief economist at FuNNeX Asset Management in Tokyo.

"China is unlikely to take specific monetary and economic stimulus until political struggle over leadership is cleared, while the euro zone's debt crisis remains a huge destabilising factor," he said.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.5%, with Hong Kong shares rising 0.5% on strong Chinese financials ahead of a slew of quarterly earnings. Australian shares added 0.4% as signs the Fed was prepared to offer more stimulus if needed boosted miners and banks.

Japan's Nikkei average lagged with a 0.1% rise.

Japanese earnings will likely be patchy, analysts said.

"Winners and losers will be identified by their ability to beat intensifying global competition," Xiao said, adding their handling in the aftermaths of last year's natural disasters such as the March 2011 earthquake in Japan and Thailand's severe floods also will demarcate winners from losers.

A recovery in equities helped firm Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by 2 basis points.

In Japan's credit default swap market, long- and shor-term dealers played a tug-of-war, with buyers seeking protection recently pushing up spreads on electronic, steel and shipping names on bad fundamentals. But Japan's sovereign CDS tightened.

Neutral Bernanke

The dollar steadied after falling to a three-week low against a basket of major currencies on Wednesday following the outcome of the Fed's meeting, while the euro stood near a three-week high of $1.3237 touched the day before.

Fed Chairperson Ben Bernanke on Wednesday said US monetary policy was "more or less in the right place" even though the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken.

The Fed also adjusted its economic forecasts to acknowledge an improving labour market and slightly higher inflation over the next few years, suggesting it has become somewhat less inclined to take more action to help the economic recovery.

"The totality of all new Fed communications ... have reinforced the idea that the policy bias is currently neutral and that the outlook remains highly dependent on incoming data," said Societe Generale in a note.

"There were a few vague and seemingly conflicting signals in today's communications, which probably reflect the difficulty in reconciling the very diverse views within the FOMC," it said.

Fragile spots remain

Fragile global growth kept the outlook mixed for South Korea.

Early on Thursday it reported gross domestic product growth accelerated in the January-March period from the previous quarter, but year-on-year growth was the slowest in two-and-a-half years, leaving analysts wondering if the economy has hit a bottom or not.

Oil futures were softer, with Brent crude slipping below $119 a barrel on Thursday, as easing concerns of a disruption in Iranian oil exports and as high US crude stocks offset optimism over a continued recovery in the US economy. US crude was down 0.1% around $104 a barrel.

Some positive signs from Europe also emerged as investors warmed up again to riskier assets.

A German government bond auction drew less in bids than the amount offered, suggesting flows into safe-haven assets may have been exaggerated, while the International Monetary Fund's stress tests showed most Spanish banks would be able to handle large economic shocks, although some remained fragile.

But German daily Sueddeutsche Zeitung wrote on Thursday, without citing sources, that the European Central Bank and a group of eurozone countries are working on a possible initiative to enable crisis-stricken banks to have direct access to Europe's permanent bailout fund.

"Only a surprisingly negative figure will reduce the market's optimism caused by the updated Fed outlook. Although don't be surprised that concerns over Europe will once again ruin the party," said Miguel Audencial, a trader with CMC Markets in Sydney.

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