Asian Shares Firm, Dollar Slumps on ECB’s Tapering Signal

TOKYO (Reuters) —
A man looks at an electronic stock indicator of a securities firm in Tokyo. (AP Photo/Shizuo Kambayashi)

Asian shares firmed on Friday, supported by solid Chinese trade data, while the dollar skidded after European Central Bank President Mario Draghi suggested the central bank may begin tapering off its massive stimulus program this autumn.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.6 percent, and was set for a 0.3 percent gain for the week.

But futures suggested Asia’s brighter mood would not bring much cheer to Europe, with the Eurostoxx 50 down 0.2 percent, DAX futures down 0.3 percent and FTSE futures 0.2 percent lower.

China’s August exports rose 5.5 percent from a year earlier, slightly missing analysts’ forecast of a 6.0 percent increase, while imports grew a robust 13.3 percent, handily beating expectations of 10 percent growth and reinforcing views that the economy is still expanding robustly despite tighter policy.

Japan’s Nikkei stock index was pressured by a stronger yen and slipped 0.6 percent, giving up 2.1 percent for the week.

Australian shares slipped 0.3 percent, hit by weakness in energy and financial sectors, with Commonwealth Bank of Australia coming under renewed pressure as it struggled to shake off a money-laundering scandal.

South Korean shares fell 0.1 percent, as automakers led by market heavyweight Hyundai Motor dropped on worries its Chinese joint venture partner may pull out following the deployment of an anti-missile system that has angered Beijing.

Markets are worried that Pyongyang could launch another missile test on Saturday, North Korea’s founding day.

Wall Street ended little changed on Thursday as investors continued to track Hurricane Irma, which was bearing down on Florida even as Texas struggles with the devastation caused by Hurricane Harvey.

Economists said Harvey could weigh on U.S. economic growth for the third quarter, though they did not expect this to delay the U.S. Federal Reserve announcing at its meeting this month a plan to start trimming its $4.2 trillion debt portfolio.

The storm caused U.S. initial jobless claims to spike to a two-year high, despite underlying strength in the labor market.

New York Fed President William Dudley said on Thursday the central bank should continue gradually raising rates given that low inflation should rebound, sounding slightly less confident than his previous hawkish comments after weak inflation readings.

The benchmark U.S. Treasury yield stood at 2.024 percent in Asian trade, down from its U.S. close of 2.061 percent. It plumbed a 10-month low of 2.016 percent earlier.

Besides the effect of slumping Treasury yields, the dollar was also pressured by remarks from ECB President Mario Draghi who said policymakers would decide on tapering this autumn, and that “probably the bulk of these decisions will be taken in October.”

The ECB must take into account the weakening of inflation owing to the strong euro as it prepares to wind down its stimulus, Draghi said after the ECB kept rates at record lows at its regular policy meeting and confirmed that asset purchases would continue at least until December.

Draghi “talked about the euro, but in terms of volatility. He talked about the strength of the euro having an impact on inflation, but other than saying he’s going to watch and monitor it, there wasn’t anything to suggest that they’re going to do anything about it,” said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.

If the strengthening currency “had some impact on their tapering plan, that would have been different, but clearly at the moment, it looks like that’s not the case,” Kotecha said.

The euro was up 0.4 percent at $1.2065 after touching a high of $1.2090, its firmest since January 2015. It was up 1.7 percent for the week.

The dollar fell 0.6 percent against the yen to 107.82 , moving back toward a 10-month low of 107.62 touched earlier. It was 2.2 percent lower for the week.

The dollar index, which tracks the greenback against a basket of six major currencies, was down 0.5 percent at 91.188 , after falling as low as 91.011, its weakest since January 2015. It was on track for a 1.6 percent weekly loss.

The Australian dollar rose 0.7 percent to $0.8101, scaling its highest peaks since May 2015.

China’s yuan strengthened further against the U.S. dollar to its strongest in nearly 21 months.

Crude oil futures firmed, with Brent crude gaining 0.5 percent to $54.77 a barrel, while U.S. crude edged up 0.1 percent to $49.14 per barrel.

On Thursday, global crude oil benchmarks diverged, with Brent rising to a 5½-month high. But U.S. crude slipped on a bigger-than-expected stock build, as the restart of U.S. refineries after Hurricane Harvey was countered by the threat of Hurricane Irma.

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