Tuesday, 27 October 2015

Asian shares consolidate gains after rally; Fed, BOJ awaited

Businessmen look at their mobile phones in front of an electronic stock quotation board outside a brokerage in Tokyo, Japan, October 23, 2015. REUTERS/Toru Hanai

Asian shares fell on Tuesday after a four-week rally ran out of steam as investors took cover ahead of central bank meetings in the United States and Japan later in the week, while disappointing U.S. home sales weighed on the dollar.

European markets were set to open flat to lower, with earnings from major companies such as Deutsche Bank < DBKGn.DE> and Novartis (NOVN.VX) in focus.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.7 percent.

China's main indexes .CSI300.SSEC slid more than 2 percent at one point, pressured by concerns about weak bank profits and growing bad loans, but pared losses by early afternoon. [.SS]

Japan's Nikkei .N225 eased 0.8 percent, though it remained near a two-month high.

Even as investors moved to the sidelines after a rally that has seen regional stocks rise more than 12 percent in a month, market strategists are becoming more optimistic over the outlook for equity markets in the near term.

"We have gone overweight on equities and our top pick in emerging markets is the Hong Kong-listed shares of Chinese companies because of the aggressive easing by China and likely more stimulus from Europe," said Benjamin Pedley, head of investment strategy for Asia at HSBC's private bank.

Risk sentiment has been supported by China's rate cut last week -- its sixth in less than a year -- and the prospect of more easing from the European Central Bank in December.

There has been speculation the Bank of Japan might expand its asset buying campaign at a policy meeting on Friday, though recent reports make it less likely.

Dealers said there was no obvious news behind the Asian stock weakness on Tuesday, though some noted tensions in South China Sea as the U.S. Navy sent a destroyer close to artificial islands built by China, drawing an angry rebuke from Beijing.

Still, some players were likely squaring positions ahead of the U.S. Federal Reserve meeting on Tuesday and Wednesday.

Investors are pricing in no chance of a rate hike this week, but could react to how the Fed's statement interprets recent soft U.S. economic data and events in global financial markets.

Markets are currently pricing in only a modest chance of a tightening in December.

"We continue to believe that ongoing uncertainty - and also liquidity concerns at the year-end - will keep this extremely risk-averse Fed on hold until the March 2016 meeting," says Michelle Girard, chief U.S. economist at RBSM.

On Wall Street, the Dow .DJI ended on Monday with a minor loss of 0.1 percent, while the S&P 500 .SPX eased 0.2 percent and the Nasdaq .IXIC added 0.1 percent. US stock index futures ESc1 were pointing to a weak start. [.N]

All eyes will be on Apple's (AAPL.O) results later Tuesday with investors anxious to hear how many new phones were sold by the world's most profitable company, and its guidance for the current quarter.

The U.S. dollar lost some of its recent gains following disappointing U.S. new home sales and a dip in Treasury yields. Against a basket of currencies, the dollar was off 0.2 percent at 96.692 .DXY.

The euro regained a little ground to $1.1065 EUR=, having touched an 11-week trough of $1.0987 on Monday. Against the yen, the dollar lapsed back to 120.55 JPY= from Monday's top around 121.51.

Commodity markets continued to be dogged by concerns over plentiful supplies and weak demand. Three-month copper CMCU3 was broadly flat at $5,206 a metric ton.

Crude oil stayed under pressure after two straight weeks of losses, on worries that the oversupply in oil products would swell from unseasonably warm weather and the waning maintenance cycle for U.S. refineries. [O/R]

U.S. crude CLc1 was down a percent at $43.45 a barrel, while Brent LCOc1 eased to $47.17 a barrel.


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