Asian shares recovered on Wednesday from a steep five-day sell-off, though the mood remained cautious given nagging worries about the economy and earnings, while oil rose on Saudi Arabia’s plans to cut output.
Regional bonds, seen as safer bets in volatile times, gained in a sign of the risk apprehension. The euro recovered after hitting a one-month low against the dollar on Tuesday, but gains were limited ahead of an expected interest rate cut by the European Central Bank on Thursday. Weak economic data and a bleak outlook for quarterly earnings results has hampered what had been a promising start to the year, though the continued flood of new corporate bond sales globally at least points to investors’ willingness to take on risk.
“We know the outlook is awful, but then we know that the market has priced in a very bleak scenario. So you’ve got this tug-of-war that occurs between the bad news and the deep valuation (discount),” said Lee Mickelburough, a partner at Perennial Growth Management in Australia.
The MSCI index of Asia-Pacific stocks outside Japan advanced 1.5% as of 0215 GMT, rebounding from a 9% loss over the previous five sessions. The index remains down more than 3% for the year.
Concerns about the global economy remain. Data on Tuesday showed US imports fell a record 12% in November, a bad omen for export-dependent Asian companies that rely on US consumers to power earnings. Corporate earnings are being hit across the world, resulting in job cuts that are spreading from the financial sector to manufacturers such as truck maker Volvo, which announced layoffs on Tuesday.
Still, Asian shares posted gains on Wednesday, as some investors viewed recent steep declines in shares such as Sony Corp as overdone. The Nikkei average advanced 0.8%, recovering from its nearly 5% drop on Tuesday. Shares in Hong Kong and Singapore advanced more than 1%, while indexes in South Korea , Australia, Shanghai and Taiwan posted more modest gains.
US crude oil futures rose $1.19 to $38.97 a barrel as cold weather in the United States pushed up heating oil demand and on comments by OPEC member Saudi Arabia that it had made deep production cuts. Oil producers have agreed to cut output to stem a slide in crude, which has fallen sharply since hitting a record high just under $150 a barrel in July. Oil prices, however, have started the year in range-bound trade.
Encouraged by falling inflation, central banks are cutting interest rates, and policy makers are implementing big stimulus plans to resuscitate economic growth. The European Central Bank meets on Thursday. It is expected to cut interest rates by 50 basis points from the current 2.5%, which remains at a higher level than the near-zero rates in the United States and Japan.
The euro rose 0.6% to $1.3264 from late New York trade, after hitting a one-month low of $1.3140 on trading platform EBS in US trading. Against the yen, the single currency gained 0.6% to ¥118.70. It had fallen as low as ¥117.13 on EBS in US trading, the lowest since early December.
The lack of certainty is being reflected by the continued gains in government debt despite yields at their lowest in years.
European credit markets were on track to set a record for supply in January, with more than €14 billion worth of non-financial euro-denominated investment-grade bonds sold. That approaches the record €25 billion raised in January 2003. (Reuters)