Nikkei soars on U.S. jobs data; Asia shares off on China data

REUTERS: Japanese shares soared on Monday, tracking a rally in global stocks as U.S. jobs data was solid but not strong enough to spawn new worry about near-term tapering of the Federal Reserve’s stimulus, while Asian shares eased on weak China data.

China May data, released over the weekend, showed unexpected weakness in trade and domestic activity struggling to pick up. Chinese imports fell 0.3% against expectations for a 6% rise as the volume of major metals imports, including copper and alumina, fell at double-digit rates. Coal imports fell sharply.

The inflation rate fell in May while growth in new loans slowed and industrial output slightly undershot expectations.

Analyst Sijin Cheng at Barclays Capital in Singapore said the firm has lowered its forecast for China’s growth this year to 7.4% from 7.9%.

London copper fell to its lowest since mid-May on Monday while the commodity-sensitive Australian dollar dropped more than 1% to a 20-month low of $0.9393, before recovering to $0.9427.

“People have adjusted expectations for China growth, but I don’t think they are adjusted to the new reality and how that will play out in the market,” said Hong Hao, chief strategist at Bank of Communication International Securities.

“In this new reality, you can’t just pile on investment to stimulate growth because of significant leverage and the Chinese economy may not respond to interest rate cuts,” Hong added.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%, extending Friday’s 1.07% drop. Hong Kong shares rose 0.3%. South Korean shares rose 0.5% after sliding 1.8% on Friday, the biggest daily percentage fall in nearly 11 months.

Markets in Australia and China are closed on Monday for holidays.

European stock markets are likely to edge lower, with financial spread-betters predicting London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX will open down 0.2%. A 0.1% rise in U.S. stock futures pointed to firmer Wall Street start.

Markets regained some stability on Monday after high volatility the past two weeks. They had been hit by concerns the Fed will weaken a stimulus commitment that’s boosted risk appetites, and then by speculation Friday’s jobs data would disappoint and cause worries about the U.S. economy.

Analysts and traders now will look at coming U.S. data for clues on the timing of the potential tapering and at the Bank of Japan’s policy meeting this week for any signs of further stimulus after a recent plunge in Japanese stocks and a sharp rise in the yen spooked investors.

The U.S. jobs data “didn’t suggest an imminent tapering, but it still pointed to the direction of the Fed scaling back its quantitative easing at some point, leaving an element of uncertainty,” said Ayako Sera, senior market economist at Sumitomo Trust Bank in Tokyo.

“U.S. retail sales this week and more upcoming data could spur further price adjustments as they will likely help converge market views on the outlook for Fed policy,” she said.

While the better-than-expected U.S. non-farm payrolls boosted U.S. and European stocks and the dollar, Treasury prices fell as the debt market focused on views that if U.S. labour conditions continued to improve, it would prompt the Fed later this year to scale down its monthly buying of US$ 85 billion in Treasuries and mortgage-backed securities.

An improving U.S. economy underpinned U.S. crude futures, which steadied at US$ 96.06 a barrel, while Brent inched down 0.1% at US$ 104.52.

The U.S. dollar extended its gains against the yen to above 98 yen, having briefly fallen below 95 to a fresh two-month low on Friday and giving up gains made since the Bank of Japan’s unprecedented stimulus unveiled on 4 April. Last month, the U.S. currency hit a 4-1/2-year peak of US$ 103.74 against the yen.

The dollar’s rebound galvanised the Japanese stock market. The Nikkei average soared nearly 5% in its best day since March 2011. On Friday, it had shed as much as 2.8% on Friday, which temporarily pushed the index into bear market territory, losing 20% from a five and a half year high two weeks earlier.

The Nikkei had taken a heavy beating partly due to concerns Prime Minister Shinzo Abe cannot meet expectations for results from Japan’s stimulus measures.

Abe said on Sunday the government would decide on tax cuts in the autumn to encourage companies to boost capital expenditure as part of sweeping reforms to revive the economy. The measures would add to a series of steps the government unveiled in a draft of its growth strategy last week.

In a fresh sign Japan’s aggressive policies to stimulate growth are paying early dividends, its current account surplus doubled in April from a year earlier, and bank lending posted its biggest annual rise in more than three years.

The BOJ, kicking off its two-day policy meeting on Monday, may take further steps this week to curb volatility in the government bond market.