Riskier assets from stocks and commodities to the Australian dollar fell on Tuesday on investor caution ahead of a gathering of central bankers and economists
in Wyoming later in the week which could shed some light on
further stimulus plans. European equities were expected to follow Asia lower, with
financial spreadbetters calling London's FTSE 100,
Paris's CAC-40 and Frankfurt's DAX to open down
as much as 0.7 percent.
Global markets have enjoyed broad-based gains over the past
month, spurred by hopes for a third round of bond buying or
other measures from the U.S. Federal Reserve to support growth,
and expectations the European Central Bank soon will act to
firmly cap borrowing costs and contain the euro zone's debt
crisis.
But investors are growing increasingly wary of the rally,
which has stretched out in absence of any concrete official
action, and turned to global growth worries to dictate trade on
Tuesday.
"Everybody is playing a waiting game now. Even if they are
in the market, it's with a very short time horizon and in stocks
that are more defensive," said Larry Jiang, chief strategist
with Guotai Junan International Securities, of Hong Kong shares
, which inched down 0.2 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan
dropped 0.4 percent to a three-week low, dragged
down by the materials sector.
Australian shares pared about half of their early
gains to trade up 0.2 percent as iron ore miners were hit by
worries about weak global growth, while Japan's Nikkei stock
average turned negative, shedding 0.9 percent under the
weight of its slumping China-linked index.
"People think the market is going to be tied up here … on
concerns over slowing growth in China. We have seen quite a lot
of shorting on some China-linked names, some of the machinery,
chemicals, that kind of stuff," a senior dealer at a foreign
bank said.
Shanghai shares steadied after tumbling to their
lowest level since March 2009 on Monday on fading hopes for more
"formal" monetary easing to underpin China's fragile growth, as
the Chinese premier failed to refer to the possibility in recent
comments.
The Australian dollar, a typical gauge for investor
risk appetite and highly sensitive to the outlook of Chinese
economy, hit a five-week low against the U.S. dollar of $1.0345.
Some see value stocks even in the current environment, as
companies have strengthened their balance sheets by cutting
costs and building cash buffers.
"The U.S. economy has picked up a little but that's coming
from a low level, while in Europe, all the macro numbers seem to
suggest the economy is not faring very well. There is some noise
of stimulus in China but generally the exporters there haven't
done too well. It's not exactly a healthy picture for the global
economy," said Kwok Chern-Yeh, head of investment management,
Japan, at Aberdeen Investment Management in Tokyo.
"If you look at the company level, though, while things are
slowing, there are pockets of resilience in this market where
companies have done relatively well," he said.
EUROPE EYED NEXT MONTH
The dollar fell 0.3 percent against the yen to 78.50
and the euro also eased 0.1 percent to $1.2486 after
touching a one-week low.
Fed Chairman Ben Bernanke will speak at the annual Jackson
Hole, Wyoming, meeting on Friday ahead of the Fed's Sept. 12-13
policy meeting. He has used the event in the previous two years
to signal the Fed's policy intentions. ECB President Mario
Draghi is due to speak at the event on Saturday.
Next month will be pivotal for Europe, with the ECB's policy
meeting on Sept. 6, followed by the German Constitutional
Court's ruling on the euro zone's permanent bailout fund on
Sept. 12.
ECB board member Joerg Asmussen said on Monday that the ECB
will tailor its new bond-buying plan to dispel any concerns that
it funds governments, and while he stopped short of when the
bank would begin buying, he made clear the plan would go ahead
despite Bundesbank opposition.
Greece will also face scrutiny next month from its global
lenders who will assess Athens' progress in debt cutting efforts
before deciding on further aid to keep the country afloat.
Brent crude oil steadied at $112.26 a barrel on
concerns that a storm heading toward the Gulf of Mexico could
strengthen into a hurricane, but U.S. crude fell 0.2
percent to $95.32.
"Oil is doing what a lot of risk assets are doing these
days," said Ric Spooner, chief market analyst at CMC markets in
Sydney. "We are now at a watershed level, after a significant
rally and there is a reluctance to push prices above current
levels, until we get details beyond the initiatives."
Spot gold slipped 0.2 percent to $1,659.75 an ounce,
after touching a 4-1/2 month high of $1,676.45 on Monday.
Copper dropped 0.8 percent to $7,577.75 a tonne.
Despite weak equities, Asian credit markets were resilient,
with the spread on the iTraxx Asia ex-Japan investment-grade
index widening a scant 1 basis point.
