Tokyo: Asian shares snapped a four-day rally on Friday and extended losses after China’s July trade data fell far short of expectations, casting doubts on whether the sputtering global economy will regain traction any time soon.
European stocks were likely to track Asia lower, while a 0.4 per cent drop in US stock futures signalled a weak Wall Street start. Financial spreadbetters called the main indexes in London, Paris and Frankfurt to open down as much as 0.6 percent.
China’s exports grew just 1.0 per cent in July from a year earlier, much weaker than market expectations for an 8.6 percent rise, while imports grew 4.7 percent, against expectations for 7.2 per cent.
This followed softer Chinese inflation and industrial production data on Thursday, which reinforced market expectations that Beijing will further loosen monetary policy before the end of September to underpin growth.
“The big miss with the trade data today could mean China is in bigger trouble than most people think, and the uncertainty might hurt interest in stocks even more,” said Larry Jiang, chief investment strategist at Guotai Junan International Securities.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9 per cent after rising to a three-month high on Thursday, but was set for a weekly gain of around 2 per cent on hopes for further policy action from central banks in Europe and the United States.
Hong Kong shares retreated from a three-month high to fall 1 percent.
Australian shares extended losses to fall 0.5 per cent while its currency eased to $1.0522 from around $1.0533 before the data. Australia is highly sensitive to data from China, its single largest export market.
Japan’s Nikkei stock average shed 1.3 per cent.
Commodities also sagged after the weak China trade figures.
Brent crude eased 36 cents or 0.3 percent to $112.86 a barrel and US crude inched down 0.2 per cent to $93.16 a barrel. Spot gold fell 0.3 per cent to $1,611.64 an ounce and copper slipped 0.7 per cent to $7,485 a tonne from around $7,537.75 before the data.
“The trade balance data missed the mark by some degree, raising the question of commodities demand in the second half and provided some downside to commodities prices,” said Tim Waterer, a senior trader at CMC Markets in Sydney, adding that China’s weakness leaves the door open for further rate cuts.
Markets have been rallying on hopes that the European Central Bank will start buying sovereign bonds to lower borrowing costs for Spain, and that the Federal Reserve will expand its monetary easing, despite suggestions from the authorities that no steps were likely before September.
Yield hunt sets tone
The euro traded at $1.2286, off Thursday’s low of $1.2266 but below a one-month high of $1.2444 hit on Monday.
The single currency has remained resilient despite fears that the region’s debt crisis is deepening, but it has failed in its recent rally to sustain a break above key resistance at the 55-day moving average, now around $1.2400.
As investors continue to hunt for higher yields, dollar/yen will be underpinned by a changing view that firmer growth prospects are dampening expectations of more Fed bond buying and exerting upward pressure on US yields, said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo.
Demand for safe-haven US Treasuries eased after data showed on Thursday that the number of Americans filing new jobless benefits claims fell last week and the U.S. trade deficit in June was the smallest in 1-1/2 years, as lower oil prices curbed imports.
The dollar/yen is typically weighed down in August on speculation of a large amount of bond redemptions in US Treasuries, as well as coupon payments due in August. Such action could spur Japanese investors holding Treasuries to sell the dollar against the yen to repatriate some of the proceeds.
“There are reasons to be concerned, but a lack of fresh factors or comments from key European figures to prompt further euro selling has led traders to adjust their positions” ahead of summer holidays, he said.
The Australian dollar edged lower against the US dollar and all-time peaks on the euro on Friday, after the nation’s Reserve Bank warned a high local currency posed an important risk to growth, even as it upgraded its economic outlook.
Asian credit markets steadied, with the spread on the iTraxx Asia ex-Japan investment-grade index little changed to stay near a four-month low.
Thursday, August 9, marked the fifth year since French bank BNP Paribas said losses on US subprime mortgages had forced it to halt redemptions at three of its funds, a day widely regarded as marking the start of the 2008/09 financial crisis.
Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo, noted that while most asset classes have yet to recover from sharp declines since then, the equilibrium level for oil prices appeared to be revised up while the Dow Jones industrial average stood at levels little changed.
“The possibility is high that oil may be more reflective of fundamentals than speculative flows compared to five years ago, while the level of Dow Jones average looks inconsistent in light of dramatic changes in other markets,” he said.