Shares slip after Japan exports fall, euro steady
2012/08/22TOKYO (Reuters) - Asian shares slipped on Wednesday as slumping Japanese exports reminded investors of the risks the euro zone debt crisis poses to regional economies, but the euro held steady on expectations the European Central Bank will act to rein in surging borrowing costs.
A rise in the CBOE Volatility Index (.VIX), a gauge of Wall Street's sensitivity to risk, and a pause in the recent run-up in U.S. Treasury yields, however, suggested investors were yet to be convinced that Europe's three-year crisis is close to resolution.
Japan's exports fell an annual 8.1 percent in July, the deepest drop in six months, dragged down by collapsing shipments to Europe and a sharp fall in sales to China. The fragile report from the world's third-biggest economy followed similarly bleak data from export-reliant South Korea and Taiwan.
Growth worries weighed on oil, with Brent little changed at $114.68 a barrel and U.S. crude also flat around $96.80. Copper shed 0.6 percent to $7,562.75 a tonne ahead of earnings from top global miner BHP Billiton (BHP.AX), which may put three mega projects on hold on Wednesday when it will likely report its first annual profit fall in three years.
BHP (BLT.L) will wrap up a torrid earnings season for the world's biggest miners, all battered by weaker prices for iron ore, copper, coal, nickel and aluminum as economic growth in big-buyer China slows to its weakest pace in a decade.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.7 percent, led by more than 1 percent declines in both the energy <.MIAPJEN00PUS> and materials <.MIAPJMT00PUS> sectors. Japan's Nikkei stock average (.N225) slid 0.9 percent as investors cashed in gains after a sharp run-up on mounting hopes for ECB action. (.T)
"Economic data confirmed fundamentals are not strong, with a slowdown in China, which relies heavily on exports to Europe, having material effects elsewhere," said Takeo Okuhara, a fund manager at Daiwa SB Investments.
"The recent rally in riskier assets had been built on a lull in Europe, so they are ready to face a correction when hopes for something unrealistic fade," he said, referring to speculation that the ECB would buy bonds to cap the yields of troubled euro zone sovereigns.
Asian equities are not yet overbought, however, judging from the amount of net foreign buying, which stood at $8.1 billion so far in August, Credit Suisse said in a research note. Flows of foreign capital remain important direction-setters for many Asian markets.
Net foreign buying on a rolling 12-month basis is 0.6 percent of market capitalization, below the 1 percent level seen overbought, the Credit Suisse note said, while net foreign buying over two months stands at 0.26 percent, less than the 0.6 percent or more seen as overheated.
ECB SPECULATION DIES HARD
Speculation that the ECB will take a decisive step to cut borrowing costs for Spain and Italy gained further momentum with an article in London's Daily Telegraph, which said the ECB was examining plans to put a hard cap on Spanish and Italian yields.
A similar report on the ECB's bond-buying scheme in German media was on Monday denied by the bank, which also repeated its stance in response to the latest British report.
Meanwhile, German Chancellor Angela Merkel voiced support for the ECB's crisis-fighting strategy last week.
"The market rallied on growing convictions that Germany stands ready to do more to keep the euro zone united. Merkel's government seems more willing to ease the official debt burden on Greece, as long as the basic elements of the second bailout programme remain," Barclays Capital said in a research note.
The euro traded at $1.2465, not far from $1.2488 hit on Tuesday, its highest since July 5.
The dollar was down 0.1 percent against the yen at 79.22 yen, off a five-week high at 79.66 yen hit on Monday.
U.S. stocks fell on Tuesday as investors took profits after driving the Standard & Poor's 500 index (.SPX) to a four-year high, while European shares rose and yields in Spain and Italy fell further. Spain's 10-year debt yields have shed about 8 percent this month.
Greek Prime Minister Antonis Samaras is holding bilateral talks with leaders of France, Germany and the Eurogroup this week to seek concessions for its austerity-to-bailout swap. His meeting with Merkel is set for Friday.
Spot gold steadied around $1,638.66 an ounce after hitting a 3-1/2 month high of $1,641.20 on Tuesday, while platinum also retreated from its highest since early May at $1,508.25 hit the previous session.
Asian credit markets were weaker, pushing the spread on the iTraxx Asia ex-Japan investment-grade index by two basis points.
