Asian shares up on Europe’s modest progress

Friday 03:45 GMT. Asian shares staged a modest rebound on rising hopes that Europe’s debt crisis will be contained, although many investors remained cautious about its impact on the global economy.

The MSCI Asia Pacific index rose 0.3 per cent as investors took heart from Italy’s successful bond auction and Greece’s appointment of the new prime minister. Positive economic data out of the US also helped boost confidence as US jobless claims fell to the lowest level in seven months.

South Korea’s Kospi Composite index was up 1.1 per cent as Hynix Semiconductor surged 2.8 per cent after SK Telecom submitted a final bid for a controlling stake in the world’s second-largest chipmaker. But SK Telecom dropped 2.4 per cent on concerns about financing and dubious synergies.

Japan’s Nikkei 225 Stock Average was little changed with the focus still on Olympus. The camera maker vacillated between positive and negative territory, and was up 1.9 per cent early in the Tokyo afternoon after tumbling as much as its daily limit for the previous three sessions. Olympus was put on watch for a possible delisting from the Tokyo Stock Exchange after the company said on Thursday it would not meet a deadline to submit earnings.

Other Japanese exporters were mixed as investors remained cautious about the global economic outlook. Sony advanced 0.8 per cent after but Toyota Motor fell 1.1 per cent after China and India saw declines in October car sales amid higher borrowing costs.

Hong Kong’s Hang Seng index gained 0.8 per cent while China’s Shanghai Composite index added 0.5 per cent. Banks and commodity producers gained ground as Europe’s debt crisis showed some signs of stabilising. China Construction Bank advanced 1.5 per cent in Hong Kong while Bank of Communications jumped 2 per cent and China Citic Bank rose 1.4 per cent. Aluminum Corp of China surged 3 per cent and Jiangxi Copper gained 2.1 per cent.

On the mainland, Poly Real Estate added 0.9 per cent, China Life Insurance was up 0.8 per cent and PetroChina rose 0.5 per cent.

Coal producers were lifted by a media report that Beijing will encourage coal companies to merge in an industry development plan to be unveiled soon. China Shenhua Energy, the country’s biggest coal producer, advanced 0.9 pr cent and Yanzhou Coal Mining rose 1.4 per cent.

In Singapore, casino-resort operator Genting Singapore sank 5.9 per cent after it posted below-consensus earnings. In Taipei, TSMC gained 0.3 per cent on higher-than-expected revenue in October.

In currency markets, the yen was trading at Y77.60 per US dollar from Y77.65 late in New York. It was at Y105.48 per euro from Y105.38. The South Korean won gained 0.4 per cent to Won1,129.20 per dollar after the Bank of Korea left its key policy rate unchanged at 3.25 per cent for a fifth straight month.

In commodities markets, spot gold rose $1 to $1,759 per troy ounce while December Nymex crude oil futures fell 22 cents to $97.56 per barrel on Globex.

In overnight trading, global risk assets saw tepid gains. European stocks suffered early sharp falls but then rallied after an auction of Italian T-bills saw strong demand, albeit at high yields, as Rome’s benchmark yield fell back below 7 per cent – though there is still little clarity on whether outgoing prime minister Silvio Berlusconi will be able to drive through a reform package before he leaves office.

At the same time, investors welcomed news from Greece that former European Central Bank vice-president Lucas Papademos has secured the post of prime minister, though they were unable to form a new cabinet by day’s end.

Traders were initially anxious after a mistaken announcement of a downgrade of France’s triple A credit rating by Standard and Poor’s to some clients, but the reaction was short-lived. The agency said it was investigating the cause of the error, and it did not reflect any impending move – though it also recently said it was watching France’s credit status carefully.

The S&P 500 index picked up steam after a soft opening and its worst decline in three months on Wednesday, when it fell 3.7 per cent. By the close on Thursday it was up 0.9 per cent despite a broker’s downgrade of Apple leading to a 2.6 per cent decline.

“The market never managed to recover its mojo after the France report,” said John Schlitz, chief US market technician at Instinet. “The sting of yesterday isn’t going away. You had some contraction in spreads, but no one’s going to get carried away with it.”

The euro vacillated, at one point touching $1.3652 then dropping as low as $1.3485 – and then stabilised in the middle, up 0.6 per cent for the session at $1.3621. The FTSE Eurofirst fell 1.5 per cent, rose 0.8 per cent and closed down 0.3 per cent.

A mixed bag of economic data gave traders license to take a host of short-term bets. Better than expected US weekly jobless numbers clashed with a downgrade to Europe’s growth forecasts and news of a slowdown in China’s exports.

The better US economic numbers helped a US Treasury auction again see weak demand, with less than expected takedown of an auction of $16bn of 30-year bonds, which was priced at the second-lowest yield ever, of 3.19 per cent.

The poor sale came despite the Treasury buying long-term bonds as part of its “Operation Twist”, and suggested a degree of confidence in the US economic outlook. It also followed a similarly weak auction of 10-year notes on Wednesday. Yields on benchmark 10-years were up 11 basis points to 2.07 per cent on Thursday.

“While we expect the situation in the eurozone to worsen, fears of a US credit crisis are overstated,” said Jack Ablin, chief investment officer at Harris Private Bank.

“As long as earnings trend higher, [US] stocks should deliver superior results over the next several quarters,” he added.

Though the poor European growth numbers were little surprise, politics remained in focus. All trades thus led to Rome. In early skirmishing, the yield on the Italian 10-year note, the market’s primary risk proxy, was up 15bp to 7.4 per cent, just a few basis points off euro-era record levels.

But talk of ECB buying, and the T-bill sale – which, unlike sales of bonds in the European financial stability facility this week, actually managed to happen – pushed 10-year yields down to 6.76 per cent. The 7 per cent mark is considered by many in the market to represent a trigger point for accelerating anxiety. The move back below that level thus boosted broader market sentiment.

However, as the day progressed yields once gain crept higher to 6.91 per cent, down 33bp for the session.

Reporting by Song Jung-a in Seoul, Telis Demos in New York and Jamie Chisholm in London.

Follow the market comments of Jamie Chisholm on Twitter: @FTGlobalMarkets

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.