Tokyo - Asian shares rose on Tuesday on expectations that
major central banks will take further policy steps to support the fragile
economy, after manufacturing data around the world highlighted the drag on
growth from the protracted eurozone debt crisis.
Monday’s data showing US manufacturing contracted for the
first time in nearly three years raised speculation the Federal Reserve will
again step in to boost the economy and support Wall Street. The Fed last month
extended the duration of a programme aimed at forcing longer-term rates down.
Many market players believe continued economic weakness will
push the Fed into a third bout of quantitative easing (QE) - the policy of
creating money to fund asset purchases that has lifted riskier assets such as
shares and commodities in the past.
Traders also expected the European Central Bank to move to
bolster the region’s economy by cutting its main refinancing rate by 25 basis
points to 0.75% at its policy meeting on Thursday.
European shares were likely to extend gains, with
spreadbetters predicting that region’s major markets would open as much as 0.5%
higher. US stock futures were up 0.1%
MSCI’s broadest index of Asia-Pacific shares outside Japan added
1% and Japan’s Nikkei average rose 0.6%.
Chinese shares outperformed in Asia, with Hong Kong’s Hang
Seng index rising 1.6% to above its 200-day moving average, catching up on Friday’s
global rallies after a holiday the previous session.
“I think we’re still seeing some post-EU summit fervour in
Hong Kong as well as expectations that the ECB is going to follow through on
Thursday by cutting interest rates,” said Tom Kaan, a director at Louis Capital
Markets in Hong Kong.
Hopes for more monetary easing supported gold, which usually
benefits as a hedge against rising prices as ample money supply and low
interest rates sow the seeds of future inflation. Spot gold rose 0.4% at $1 603
“The market is enjoying the mood right now with the ECB in
all likelihood poised to follow in the same footsteps as European leaders who
have taken substantial measures to address their problems and calm fears of a
systemic risk,” said Han Bum-ho, an analyst at Shinhan Securities.
Supporting expectations of a rate cut, the jobless rate in
the eurozone rose to a record high in May and a measure of factory activity in
the region held steady at its lowest level since June 2009.
Australia’s central bank on Tuesday kept its main cash rate
steady at 3.5%, saying there has already been a material easing in monetary
policy over the past six months.
As riskier assets such as stocks crawled higher, oil erased earlier
US crude futures gained 0.8% at $84.43 a barrel and Brent
climbed 0.9% to $98.24 a barrel as escalating tensions between Iran and the
West offset concerns gloomy global manufacturing activity will hurt oil
London copper surged more than 2% to a session high of
$7 790 a tonne, its highest since May 22, on hopes for monetary stimulus.
The Australian dollar, which is also often viewed as a gauge
of risk appetite due to its sensitivity to demand for commodities, inched up
0.1% to $1.0260 against the dollar. It kept its recent uptrend against the euro
The eurozone’s ongoing debt crisis continues to weigh on the
euro, but its impact on other currencies appears to be diluting, said Masafumi
Yamamoto, chief FX strategist at Barclays in Tokyo.
“The US manufacturing data stood out in its surprising
weakness, but it’s premature to judge the economy is slumping until we see more
data such as industrial output for June,” he said.
Euro clearly pressured
The euro nudged up 0.1% at $1.2595, above Monday’s low of
$1.2568 but well below Friday’s high of $1.2693.
Finland and the Netherlands opposed a plan for the
eurozone’s permanent bailout fund to buy government bonds in the secondary
market, highlighting implementation hurdles from a surprise agreement last week
by European leaders to let their rescue fund inject aid directly into stricken
banks and intervene in bond markets to support highly indebted states.
After the initial euphoria that followed Friday’s deal,
markets quickly shifted focus to potential risks such as the insufficient size
of the rescue fund and the ratification process in each member state.
For the euro to find a solid floor the Spanish 10-year yield
must hover below 5.94%-5.99% and Italy’s 10-year yields need to clearly fall
below 5.38%, Barclays’ Yamamoto said.
Improvement was limited in Asian credit markets, with the
spread on the iTraxx Asia ex-Japan investment-grade index narrowing marginally
by 2 basis points.