Published October 03, 2012
TOKYO – The dollar firmed and most riskier assets fell on Wednesday as data from China and Australia added to gloom about the global economic outlook, which already was deepened by uncertainty about the timing of Spain's request for a bailout.
Due to investors' reduced appetite for risk, the index measuring the dollar against a basket of six major currencies inched up 0.1 percent <.DXY>. The dollar touched a 1-1/2 week high of 78.31 yen earlier.
The euro eased 0.2 percent to $1.2896, having come off a three-week low of $1.28035 touched on Monday but drifting away from a 4-1/2 month high of $1.31729 seen in mid-September.
Australian currency and equities were hit by data showing the widest trade deficit in 3-1/2 years of A$2.03 billion in August. Falling prices for iron ore and coal eroded export earnings, in a reflection of how weak demand from China has hurt the resource-rich country.
Australian shares <.AXJO> reached a 14-month high, buoyed by the Reserve Bank of Australia's move to cut interest rates a day earlier to defend the local economy against global headwinds. But then the trade deficit news pared gains, leaving the index up only 0.1 percent for the day.
The Australian dollar slipped 0.5 percent, extending losses to a one-month low of $1.0217.
China's official purchasing managers' index for the services sector fell to 53.7 in September from 56.3 in August as growth in the country's manufacturing industry stabilized at a slower pace, putting the world's second-largest economy on course for a seventh straight quarter of slowdown.
"It's hard to get bullish when the numbers are so bad, especially in China and the euro zone," said Tony Nunan, an oil risk manager at Mitsubishi Corp, referring to weak manufacturing data released this week.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was down 0.2 percent. Earlier, the index was supported by a 0.5 percent gain in Hong Kong <.HSI> which resumed trading after a holiday weekend, but then the Hang Seng's gain evaporated.
Japan's Nikkei average <.N225>, which inched up 0.1 percent earlier, was down 0.3 percent. <.T>
Markets in China and South Korea are closed for holidays on Wednesday.
As a slump in global demand weighs on Asia powerhouses China and India and on its export-dependent economies, the Asian Development Bank cut most of its 2012 and 2013 growth estimates for developing Asia on Wednesday.
RELIANT ON ECB
Analysts say markets nevertheless have become resilient since last month, when the U.S. Federal Reserve launched an aggressive stimulus package and the European Central Bank announced a program to buy bonds of euro zone states which ask for an assistance.
"Ever since these steps are taken, tail risks receded, market sentiment improved and market reactions to negative news became less acute than before," said Junya Tanase, chief FX strategist at JPMorgan in Tokyo.
"But there is no trend emerging as markets have not had a convincing assessment about risk for months," he said, adding that a result of Spain's credit review could be one catalyst.
He said markets have also priced in weak U.S. economic figures since disappointing August jobs data which preceded the Fed's action. Reasonable showings from payroll processor ADP's measure of private sector hiring and the Institute for Supply Management's September non-manufacturing index, due later on Wednesday, could be positive surprises and boost stocks and lift risk currencies against the yen, Tanase said.
Spanish Prime Minister Mariano Rajoy said on Tuesday a request for European aid was not imminent, denying a report Madrid could apply for help as soon as this weekend.
"The potential timing (for a Spanish request) is obviously in flux and complicated by upcoming elections. Headlines and speculation are likely to continue to induce near-term market volatility," Barclays Capital said in a research note.
Spain's debt-saddled regional governments have magnified the burden on a central government already faced with its own huge deficit, pressuring the country's borrowing costs in open markets.
Market players are waiting for the Eurogroup meeting next Monday for potential progress on Spain. Ratings agency Moody's also said it will announce the results of a review of Spain's sovereign debt rating, currently just one notch above junk status, some time this month.
Other central bank policy meetings scheduled this week include ones for the ECB, the Bank of England and the Bank of Japan.
After stronger-than-expected factory data from the United States, investors will focus on Friday's nonfarm payrolls data, the first key report after the Fed's easing moves last month.
U.S. crude fell 0.3 percent to $91.58 a barrel and Brent fell 0.4 percent to $111.08.
Asian credit markets were subdued, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening marginally by one basis point.
(Additional reporting by Ramya Venugopal in Singapore; Editing by Richard Borsuk)