By Chikako Mogi
TOKYO (Reuters) – Asian shares and the dollar stayed pressured while Japanese equities outpeformed on Friday, and investors remained nervous over whether the U.S. Federal Reserve might soon taper off the stimulus programme that has helped send Wall Street soaring.
European stock markets are expected to edge higher, with financial spreadbetters predicting London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX to open up 0.2 percent higher. A 0.1 percent rise in U.S. stock futures pointed to a steady Wall Street open.
MSCI’s broadest index of Asia-Pacific shares outside Japan gave up early gains to trade down 0.3 percent, nearly matching Thursday’s six-week low. With a fall of about 4 percent so far in May, the index was set for its worst monthly performance in a year.
“Generally speaking, we are going to be in a situation where markets will be looking towards the Fed’s quantitative easing to be wound down finally. We’ll see over the next few months nervousness in risk markets, and equity markets in general,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.
Immediate focus for Asia now will be Chinese economic data due over the coming week and U.S. nonfarm payrolls due next Friday, he said.
“Between now and then volatility is expected to spike as the herd tries to read in to every little data point the effect on future monetary policy,” Jonathan Sudaria, a trader at Capital Spreads, said in a note to clients, referring to how markets have zeroed in on the short term vacillations of whether the Fed will taper or not.
Global markets rose overnight on a set of weaker-than-forecast data which pointed to a fragile economy still in need of monetary policy support.
China shares were ending their best month this year on a down note, with Hong Kong markets also weak as investors took profit on outperformers ahead of economic data over the weekend.
“People are getting nervous about the Fed, but it’s important to realise any pullback in quantitative easing is going to have to be gradual,” said Larry Jiang, chief strategist at Guotai Junan International Securities.
Australian shares inched up 0.2 percent after touching their lowest in nearly two months the previous session while South Korean shares rose edged up 0.1 percent.
Japan’s Nikkei stock average outshined its Asian peers with a 1.7 percent gain, after tumbling more than 5 percent to a five-week low on Thursday as exporters took a hit from the dollar’s fall against the yen. The Nikkei scaled a 5-1/2-year peak just last week.
Analysts said the recent correction presents an opportunity for investors to re-enter the market at better levels.
“It’s not a bear market, it’s just a correction,” said Kenichi Hirano, a strategist at Tachibana Securities.
The dollar was up 0.1 percent against the yen at 100.82, off a three-week low of 100.46 yen reached on Thursday. The dollar index, measured against a basket of six key currencies, steadied after touching a three-week low on Thursday, having hit its highest since July 2010 of 84.498 just a week ago.
CORRECTION FROM OVERSHOOT
The Nikkei had raced ahead and overshot even relative to the rapid rate of yen selling, which was inspired by expectations for bold reflationary measures by the Bank of Japan, so corrections to Japanese stocks may be steeper than the change in currencies. In the past week, the Nikkei shed 15 percent compared to the dollar’s 3 percent drop against the yen.
“Given the fact that markets embraced a sliding yen as a sign that central bank intervention continued to offer a sizable tailwind for equities, we have to raise the red flag on what if it doesn’t – at least until it does again?,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, in a note to clients.
“We must acknowledge that there are several headwinds brewing that could trip up investors.”
The heightening volatility in Japanese equities and the yen had come hand-in-hand with the surge in benchmark 10-year Japanese government bond yields to a one-year high.
The jump in JGB yields was partly in line with rising U.S. yields but it also underscored the risk of putting too much confidence in the BOJ’s aggressive bond buying plan alone to contain increases in Japanese yields, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute.
“The Japanese government’s growth strategy plan due to be unveiled early next month will play a significant role in determining market trends going forward,” Kumano said.
The euro recovered the $1.30 level and reached a three-week high on Thursday, encouraged by the bigger-than-expected improvement in the European Commission’s economic confidence survey, but commodities remained generally top-heavy.
“Commodities tend to move in tandem with the dollar, so if speculation about an eventual shift in the Fed’s stance pushes U.S. yields higher and the dollar rises, that would generally cap commodities prices,” said Bob Takai, general manager of Sumitomo Corp’s energy division in Tokyo.
U.S. crude futures were steady around $93.64 a barrel and Brent was also little changed at $102.22.
Spot gold was up 0.3 percent to $1,417.76 an ounce, helped by the dollar’s soft tone.
(Additional reporting by and Ayai Tomisawa in Tokyo and Clement Tan in Hong Kong; Editing by Eric Meijer)