Asia stocks slip on Ukraine tensions

Friday, 8 August 2014 01:32 - - {{hitsCtrl.values.hits}}

Reuters: Asian shares retreated while investors flocked to safe haven assets such as bonds and gold on Thursday, spooked by a Russian troop build-up on the border with Ukraine and tit-for-tat economic sanctions between the West and Moscow. Sentiment soured further in Asia after the Australian dollar, seen as a barometer of risk appetite, sank after Australia’s unemployment rate jumped unexpectedly to a 12-year high, sparking talk of an interest rate cut there.MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.3% but Japan’s Nikkei average turned positive after Reuters reported Japan’s public pension fund will increase allocations to stocks. European shares are also expected to fall, with spread betters seeing Germany’s DAX falling up to 0.2% and France’s CAC40 0.1%. “We had negative factors when investors had already felt that stocks are a bit risky because they are supported by expectations of easy monetary policy rather than a strong economy,” said Akito Fukunaga, chief yen bond strategist at Barclays in Tokyo. “That is why risk asset prices are taking a big hit now,” he added. Russia said on Wednesday it will ban all imports of food from the United States and all fruit and vegetables from Europe, in a sweeping response to Western sanctions imposed over its support for rebels in Ukraine. As fighting has intensified on the ground in eastern Ukraine, NATO also said Russia massed around 20,000 combat-ready troops on Ukraine’s border. “I think the chances of Russia invading Ukraine are low. But you can’t be entirely sure when a large number of troops are in confrontation. Investors will be inclined to avoid risk and take profits,” said Hidenori Suezawa, analyst at SMBC Nikko Securities. U.S. shares hit two-month lows on Wednesday before ending almost flat while shares in Europe, seen as more vulnerable due to Europe’s closer economic ties with Russia, fell to near-four-month lows. There are signs the crisis in Ukraine was affecting Germany, Europe’s biggest economy. Data showed on Wednesday German industrial orders slid 3.2% in June, the steepest fall since September 2011 and confounded expectations for a 1.0% rise. The economy ministry said political tensions had probably led to more consumer caution. In further evidence of economic weakness in Europe, Italy’s economy unexpectedly slid back into recession in the second quarter as gross domestic product shrank 0.2% from the first three months of the year. While the European Central Bank is expected to keep its policy on hold at its meeting later in the day, Wednesday’s data and persistently low inflation in the euro zone should keep alive market expectations for the bank to eventually turn to quantitative easing. Against this backdrop, the euro slid to a nine-month low of $1.3333 against the dollar on Wednesday. The single currency last stood at $1.3386. The biggest mover in Asia was the Australian dollar, which fell 0.7% to $0.9288 after a poor employment report revived expectation that the Reserve Bank of Australia may cut interest rates again from the current record low. Gold retreats as firmer dollar offsets Russia concerns LONDON (Reuters): Gold edged lower on Thursday after rising more than 1% the previous day as a firmer dollar offset concerns that tensions between Russia and the West over Ukraine could escalate. A build-up of Russian troops on the border with Ukraine and tit-for-tat economic sanctions between the West and Moscow on Wednesday drove investors out of assets seen as higher risk including stocks and into the relative safety of bonds and gold. European shares, which had fallen sharply, showed signs of stabilising on Thursday, while the dollar index edged up 0.1%. Gold, which is priced in dollars, tends to lose ground when the U.S. unit firms. Spot gold was down 0.2% at $1,302.20 an ounce at 0933 GMT, while U.S. gold futures for December delivery were down $4.70 an ounce at $1,303.40. “There are a lot of crosswinds going on for gold,” Deutsche Bank’s Global Head of Commodity Research, Michael Lewis, said. “You have long-term U.S. real yields going down to new lows and geopolitics, which should be supportive, but on the flip side you have dollar strength coming through and equities hitting new highs.” European stock indexes hit a string of new highs in June and July and remain close to those levels. “Those various forces are working against each other, which is maybe why we’re still in this rangebound market,” Lewis said. In the physical markets, buying slowed on Thursday after prices rose above $1,300 an ounce. Premiums in top buyer China dropped to about $1 an ounce from $2-$3 in the previous session. Demand had already been sluggish due to the seasonally quiet summer period and on expectations of a further drop in prices. Investor sentiment in bullion still seemed fragile on persistent worries over possible tightening of monetary policy in the United States.