Shares, euro steady ahead of key meeting

2012-08-29 08:59

Tokyo - The euro, Asian shares and gold held steady on Wednesday as investors awaited US Federal Reserve chairperson Ben Bernanke's speech to international central bankers gathering in Jackson Hole on Friday and a European Central Bank meeting next week.

Expectations that Hurricane Isaac, which made landfall in southern Louisiana on Tuesday, would spare Gulf Coast oil production facilities from significant damage helped bring down Brent crude prices.

Otherwise, eyes were locked on central banks for any signs of further monetary easing from the United States, and from Europe, where the ECB meeting on September 6 is due to discuss new measures to help European nations hardest hit by the debt crisis.

A request by Catalonia, Spain's most economically important region, for the central government to provide a €5bn rescue to meet financing needs and debt costs has heightened fears that Spain will need a European bailout.

European equities were expected to start narrowly mixed, with financial spreadbetters calling London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open between a 0.2% drop and a 0.3% gain.

MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.2%, after hitting a three-week low on Tuesday, and the Nikkei stock average gained 0.4% after closing at its lowest level in two weeks.

The euro traded at $1.2557, staying near a seven-week high of $1.2590 hit last week, and touched an eight-week high against the Australian dollar at A$1.2123 on optimism that Europe will take positive steps to tackle its debt crisis.

Spot gold traded at $1 668.45 an ounce, near a four-and-a-half month high of $1 676.45 hit earlier in the week.

Bernanke's speech at Jackson Hole precedes the Fed's September 12-13 policy meeting, and he has used the event in the previous two years to signal the Fed's easy policy intentions.

But investors have become less certain of getting any policy hint from Bernanke this week or strong monetary stimulus from the Fed's meeting next month, as data released over the past month has generally pointed to a modest US recovery.

"Everybody's waiting, but I think Bernanke and the other central bankers are limited in what they can do to boost growth," said Wang Ao-chao, UOB Kay Hian's Shanghai-based head of research.

Key jobs data due early in September could still revive expectations for a powerful easing if numbers were weak.

Fed policymakers have not agreed at this point to a new round of stimulus, Dallas Federal Reserve Bank President Richard Fisher, a non-voting member on the Fed this year, told Reuters on Tuesday, saying "Nothing is predestined."

"We don't believe that Bernanke will pre-commit the Fed at the JH conference (especially given the important upcoming Payrolls release on 7 September)," Societe Generale said in a research note. "There is a risk that markets (especially the equity markets) will react with disappointment."

Optimism that the Fed would soon undertake major quantitative easing action through a third round of bond buying, nicknamed QE3, had fuelled market rallies over the past month, but the growing doubts were evident as the CBOE Volatility index inched up to close at a four-week high of 16.49 on Tuesday.

The VIX measures expected volatility in the Standard & Poor's 500 index over the next 30 days, and its climb typically accompanies a rise in risk aversion.

More hopeful on Europe

In contrast, hopes remained fairly firm for chances that the European Central Bank will soon unveil measures to ease borrowing stress in struggling countries and take a step forward in containing the three-year eurozone debt crisis.

ECB President Mario Draghi cancelled his attendance of Jackson Hole due to a heavy workload as he gears up for the bank's critical policy-setting meeting on September 6.

"Markets are expecting the ECB to provide some kind of details about the bond buying scheme, and (Draghi skipping Jackson Hole) may imply he is facing some difficulties putting together the plan," Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Failing to live up to market expectations could undermine the euro as concerns over Spain's fiscal woes strengthened.

In the oil market, with US crude prices were down 0.3% at $96.04 a barrel and Brent eased 0.1% at $112.45.

Hurricane Isaac poses the first major test for New Orleans' multibillion-dollar flood protections put in place after Katrina devastated the US Gulf Coast seven years ago.

Asian credit markets were also lacklustre, with the spread on the iTraxx Asia ex-Japan investment-grade index little changed.

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  • CDerrenberg - 2012-08-29 09:28

    Global Trouble ! Yes, this is exactly what we expected. Broad-based gains, and unrealistic rallies across all internationals & especially SA shares, as from the start of the 2012 year. All markets, except for the gold and platinum companies, are totally over cooked and blown up with very little to zero real substance or support on current pricing, except for some technical channels they are running in. More specifically this is the case with SA financials and banking shares, Nedbank, Firstrand (FNB), OldMutual and even Sanlam. ABSA & Standard had some small corrections recently, but also require strong corrections. HOWEVER, investors are growing increasingly wary of this rally and now play the waiting game and try to predict the big adjustment which could happen literally any moment. As investors make last attempts to push pricing up a last few cents (the real late comers !), based on some technical trends ONLY, most investors will start taking profit towards this week-end and start of next week and the BIG sell off will begin, which will be the beginning of the big correction downwards. We see the global economy slowing down and shrinking, with NO REAL outcome or plan to "save" or rectify the situation, including USA, China, Eurozone etc. Watch closely, start dumping those financial and banking shares and start building those golds and platinum stock portfolios. (Hot Tip: Harmony to take off, any day, from current R79 levels to the R130 level - 60 to 65% growth ! NJoy!)

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