Asian stocks on back-foot on Fed, Covid concern

Markets retreat as investors look to the Federal Reserve’s guidance on monetary policy, but Covid concern and vaccine efficacy also weigh on sentiments. China and Japan buck trend on upbeat growth data

Asian stocks on backfoot as Fed, Covid concerns keep traders on tenterhooks
Bears ran a rampage on Dalal Street today as Asian markets stepped back on worries of stretched valuations. Photo: The Bombay Stock Exchange

(ATF) Equities in most Asian markets slipped Wednesday as investors waited for the Federal Reserve’s guidance on US monetary policy amid lingering concern that roadblocks will hamper the Biden administration's $1.9 trillion stimulus.

The MSCI gauge of Asian ex-Japan shares slipped almost 0.7%, or 5.93 points to 911.66, dragged lower by profit-taking in South Korea, Singapore, Hong Kong, Thailand and Jakarta, and a bear rampage on Dalal Street in India.

Regionally, slim gains though, were seen in China, Japan and Taiwan while currencies traded flat to slightly higher as investors eyed Federal Reserve Chair Jerome Powell's news conference later in the day after the central bank concludes a two-day policy meeting.

Analysts expect the Fed to stick to its ultra-easy monetary policy.

Covid still top concern

But they said markets continued to struggle for near-term direction as Covid casts a pall over the proceedings, creating an unpleasant situation for both risk and healthcare concerns.

“With the virus spreading like wildfire in parts to the world, it is now possible that Q1 will be a lost quarter and part of 2Q also,” said Stephen Innes, Chief Global Market Strategist at Axi.

“Some are even concerned that vaccines may not prove useful enough to eradicate the virus. And these concerns will continue to linger over markets like a dark cloud until vaccine distributions get ironed out, and a definitive drop in contagion levels can thoroughly support the vaccine efficacy results.”

Upbeat China, Japan

But as upbeat industrial data suggested a sustained recovery while the manufacturing sector rapidly emerges from its Covid slump, China stocks closed higher on Wednesday, with banking and manufacturing shares leading the gains.

At the close, the Shanghai Composite index was up 0.11% at 3,573.34, shrugging off concerns that policy makers would shift to a tighter stance to cool gains in share prices.

Official data on Wednesday showed that profits at China’s industrial firms grew for the eighth straight month in December.

The Asian country is the only major economy in the world to avoid a contraction in 2020, with gross domestic product up 2.3% for the full year, while many countries remain crippled by the pandemic.

Japanese stocks also closed higher, on hopes of better corporate results after the International Monetary Fund raised its forecast for global growth, while shares of Nitto Denko jumped following a revision in its earnings outlook.

The Nikkei share average ended 0.31% higher at 28,635.21, while the broader Topix gained 0.65% to 1,860.07.

“Many of the Japanese stocks are sensitive to the global economy. Investors are taking a fresh look at Japanese shares after the IMF’s global economic outlook,” said Hideyuki Ishiguro, senior strategist, Daiwa Securities.

South Korean shares closed lower as major heavyweight names slid. The won gained, while the benchmark bond yield fell. The KOSPI closed down 17.75 points, or 0.57%, at 3,122.56, after falling 2.1% in the previous session.

Chip giant Samsung Electronics and LG Chem fell 1.3% and 2.8%, respectively, while Samsung BioLogics and Celltrion jumped 5.9% and 2%, each.

LG Display slumped nearly 5% even as it reported its highest quarterly profit in over three years, with help from increased shipments of Apple Inc’s new iPhones and on rising panel prices.

Bear rampage in India

Extending their losing streak into the fourth consecutive session, Indian equity benchmarks ended with deep cuts today, with continued selling in heavyweights Reliance Industries after US e-commerce giant Amazon.com sought to block Future Group’s $3.4 billion retail asset sale to the conglomerate.

Pre-budget jitters also weighed on sentiment.

The benchmark Sensex opened lower and dropped 1,078 points in intraday trade. Nifty fell below 13,950 indicating that investors are taking money off the table ahead of mega-policy event Union Budget 2021.

At close, Sensex was 938 points, or 1.94 percent, down at 47,409.93 and Nifty was 271 points, or 1.91 percent, down at 13,967.50.

Dollar stuck but Pound soared

The dollar was stuck on the back foot against major peers on Wednesday as markets wait on comments from Federal Reserve Chair Jerome Powell, who is likely to renew a commitment to ultra-easy policy.

The greenback though, held declines against riskier currencies, with pandemic recovery hopes getting a boost as the International Monetary Fund upgraded its forecast for 2021 global growth.

"We’ve had a lot of speculation recently that the Biden stimulus package won't be negative for the dollar at all, in fact it will be a positive thing just on the basis that it should lead to U.S. economic outperformance," said Kyle Rodda, a markets analyst at IG Markets.

 "The stronger the world economic outlook, the weaker the U.S. dollar," said Joseph Capurso, currency analyst at Commonwealth Bank of Australia in Sydney. "Powell is going to make clear that they don't see any near-term exit from their very easy policy stance, and that's going to pull the dollar down.

The Fed chair is due to speak at a news conference after the central bank's two-day policy meeting that ends Wednesday.

Earlier this month, he said in a web symposium with Princeton University that the US economy is still far from the Fed's inflation and employment goals, and it is too early to discuss altering monthly bond purchases. The dollar index ticked up 0.1% to 90.253 on Wednesday in Asia, following a 0.2% decline the previous session.

The British pound climbed to its highest since May 2018 at $1.3753 before trading slightly lower at $1.3724, after employment data outperformed and notable progress in its Covid-19 vaccination programme.

Sterling is set to continue to outperform, and the UK should recover faster than Europe, which faces a double-dip recession. GBP/USD looks likely to test nearby resistance at 1.3745, which points to further gains above 1.40000 in the coming days as long as the FOMC remains ultra-dovish, said Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

  • With reporting by Reuters

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