Asian shares ease, sterling remains vulnerable

Reuters: Asian shares fell on Wednesday on investor concerns that the recent rally in global equities was running out of steam, while sterling clawed its way off lows but remained vulnerable after weak UK data fed fears of a triple-dip recession.

Sentiment toward riskier assets was not completely soured, however, with oil and copper clinging on to gains while gold struggled to extend its climb.

The Dow Jones Industrial Average marked another record close on Tuesday, rising for an eighth straight day and heading higher into overbought territory, but the S&P 500 slipped and European shares retreated from modest gains at the end of the session, just shy of a fresh 4½-year closing high.

The MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6%, pulled lower by a similar decline in Australian shares, Hong Kong fell 0.8% while mainland China indexes sagged more than 1%.

“We are still in the scare framework, people are still scared of risk,” Rabobank International in Hong Kong financial markets research for Asia-Pacific head Adrian Foster said. This was despite the generous global liquidity still in place even when the risks that prompted central banks into accommodative stances have subsided, with Europe stabilising and the United States skirting around its budget problems.

Barclays Capital in New York head of asset allocation Michael Gavin, suggests the return of the VIX volatility index to levels seen before the global financial crisis may indicate a ‘new normal’, extended period of low volatility, buttressed by activist central banks ready to restore calm when they can.

“Of course, this whole context could change if some risk materialises that cannot be contained by activist central banks. But the main risks that have preoccupied investors in the past several years seem unlikely to return to such menacing proportions,” Gavin said in a research.

“We think it makes more sense for investors to focus on navigating a generally low-volatility environment than to prepare for another outbreak of anxiety in the months to come.”

As the Yen’s weakness paused, Japan’s Nikkei stock average fell 0.5%, after snapping an eight-day winning streak which took the index up to a 4½-year high on Tuesday.

Japan’s approaching fiscal year-end on 31 March was also prompting investors to sell to adjust their positions.

The Dollar fell 0.2% to 95.87 Yen after rising to 96.71 Yen on Tuesday, its highest since August 2009.

The Euro fell 0.1% to 124.94 Yen, after reaching a one-month high of 126.03 on Tuesday. Expectations for much bolder monetary easing from the Bank of Japan when a new leadership takes over next week have kept the yen under pressure.

Sterling traded up 0.2% to US$ 1.4933, after falling to its lowest since late June 2010 on Tuesday after data showed a surprise fall in British industrial output in January, pushing the pound down to US$ 1.4832.

Against the Australian Dollar, the pound skidded towards AU$ 1.4370 on Tuesday, lows not seen since 1985, but was up at AU$ 1.4489 on Wednesday.

“Sterling’s weakness on the foreign exchanges remains intact as an absence of fresh initiatives from the Bank of England, and the lack of room to ease fiscal policy, leave much onus on a weaker pound to help stimulate growth,” ANZ said in a note.

The Euro was steady around US$ 1.3034, after being weighed down by a warning on Tuesday from Bundesbank Chief Jens Weidmann, who is also a member of the Governing Council of the European Central Bank that the Euro zone’s crisis has not ended.

Investors will watch bond sales from highly-indebted Euro zone countries later in the day to gauge the degree of anxiety. Italy will offer three-year and 15-year bonds on Wednesday, while Spain plans to sell bonds due 2029, 2040 and 2041 at a special, off-calendar auction on Thursday.

Crude oil rose 0.2% to US$ 92.71 a barrel and Brent was steady around US$ 109.64.  London copper was up 0.2% at US$ 7,846.25 a metric ton.

Spot gold inched up 0.1% to $1,592.76 an ounce.