Asian shares lackluster as growth worries weigh

Reuters: Asian shares edged lower on Tuesday after Germany’s business confidence fell in September for a fifth consecutive month and Caterpillar Inc (CAT.N), the world’s largest earth moving equipment maker, cut its earnings forecast, underscoring worries about slowing global growth.

Uncertainty about the bailout prospects for Greece and Spain, as the euro zone’s three-year-long debt crisis rumbles on, also weighed on investors’ risk appetite.

The MSCI index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was choppy, caught in a plus 0.1 and minus 0.1% range.

Resources-reliant Australian shares .AXJO eased 0.28% as a weaker outlook for industrial metals hurt sentiment, while Hong Kong .HSI and Shanghai .SSEC shares were down 0.18% and 0.4%, respectively.

Oil, copper and gold rebounded from the previous day’s losses while the euro also recovered as the dollar eased slightly. But the safe-haven yen firmed against the dollar.

“It’s incredibly difficult to ascertain what fair prices are when central banks are completely distorting financial realities by just throwing money at problems and trying to squeeze growth out of awfully over-indebted private sectors and public sectors,” said David Baran, co-founder of Tokyo-based hedge fund Symphony Financial Partners.

“That makes it very hard for investors to have confidence in what they are doing, and clearly that’s why you are seeing a race to the safest perceived instruments,” he said.

Tokyo’s Nikkei average .N225 edged up 0.3% in thin volume on the last day for getting on ownership rolls for mid-term dividends from many shares. .T

“The dividend seekers are driving gains, and there are also some investors desperately trying to keep the benchmark above 9,000 before the end of the first half of the financial year on Friday,” said Hideyuki Fukunaga, CEO of Investrust.

The German Ifo institute’s monthly business sentiment index fell for a fifth successive month in September to its lowest level since early 2010, with the outlook component touching its worst level since May 2009.

“This lends support to the thesis that the weaker growth outlook is spreading to the EU core,” Barclays Capital said in a note.

Citing weakness in the world economy, Caterpillar cut its 2015 earnings forecast, raising chances of weak guidance from other firms in the run up to the US earnings reporting season.

Weak fundamentals

Markets had welcomed additional stimulus packages from the US Federal Reserve and the Bank of Japan, as well as the European Central Bank’s move aimed at easing the burden of heavily indebted euro zone states seeking aid.

But investors soon returned their focus back to the weak economic fundamentals which drove central banks into action in the first place.

Deputy finance ministers and central bankers of the Group of 20 wealthy and leading emerging nations agreed that central bank stimulus was not enough to fix the ailing global economy, and governments must increase their efforts to boost growth.

The International Monetary Fund’s Managing Director Christine Lagarde said on Monday the IMF is set to cut its forecast for global growth next month when it updates its projections for the world economy. The IMF/World Bank meetings will be held in Tokyo on October 12-14.

The Bank of Japan’s current account balance hit a record high of 44.21 trillion yen on Monday, as the bank further eased its already very loose policy last week.

But the accommodative stance has not weakened the yen, which traded at 77.83 yen, barely above Monday’s one-week high against the dollar of 77.805, while the dollar has felt the Fed’s easing effect, with US Treasuries’ yields inching lower.

The dollar index measured against a basket of key currencies .DXY was down 0.01% at 79.511.

The euro edged up 1% to $1.2944 but remained vulnerable as investors waited for Spain to present its draft budget plan for 2013 and unveil new structural reforms, as well as the results of stress tests on the country’s banking sector.

Spain has come under renewed pressure from markets, and risks a downgrade of its sovereign debt rating to junk status by ratings agency Moody’s, which is expected to announce its review soon. Madrid also faces a 27.5 billion euro ($35.52 billion)refinancing at the end of October.

Spain has not made clear whether or not it would seek an external sovereign bailout, and EU officials said Prime Minister Mariano Rajoy was not expected to do so before a regional election in his native Galicia on October 21.

Another typical safe-haven asset, gold, steadied to around $1,764.69 per ounce, after falling on Monday as investors took profits from the jump in prices to $1,787.20 per ounce on Friday, their highest since February 29.

US crude rose 0.4% to $92.31 a barrel, while Brent added 0.3% to $110.15 as escalating tensions surrounding Iran offset concerns about weak demand in a still-fragile global economy. <O/R>

London copper rose 0.6% to $8,231.50 a metric ton.

Asian credit markets softened slightly, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by two basis points.