Asia stocks slip, Japan rebounds

  • 08/02/2016

Asian shares have pared losses as a weaker yen helped Japan's Nikkei snap a four-day losing streak, but trade was thin with many regional markets closed for the Lunar New Year holiday.

Wall Street's losses on Friday (local time) curbed overall sentiment, though S&P 500 E-Mini futures rose about 0.4 percent as investors focused on signs of strength in a mixed US nonfarm payrolls report released late last week.

Financial spreadbetters predicted Britain's FTSE 100 to open around 0.6 percent higher, and Germany's DAX and France's CAC 40 to each open up about 0.4 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent, with Australian shares slipping a few points to end nearly flat.

But Japan's Nikkei erased early steep losses as the US dollar gained on the yen, and ended up 1.1 percent on Monday.

With Singapore, Hong Kong and mainland China all closed for the new year holiday, volume was thin. China, a focus of recent market concern, will be closed for the entire week for the holiday.

Data released over the weekend showed China's foreign reserves fell for a third straight month in January, as the central bank dumped US dollars to defend the yuan and prevent an increase in capital outflows.

Beijing has been struggling to underpin the yuan, which faces depreciation pressure as China's growth rate slows to its lowest levels in a quarter of a century.

"Just as China's persistent accumulation of foreign reserves in the first decade of the 21st century signalled that its managed currency was undervalued, its persistent loss of foreign reserves signals that the yuan has become overvalued by market criteria," economist Bill Adams at PNC Financial Services Group said in a research note.

"There is a large probability that China's central bank tires of spending its foreign reserves to defend an overvalued currency in the near future. The People's Bank of China will likely widen the currency's trading band and permit a larger managed slide against the dollar in coming months."

In currency markets, the US dollar index, which tracks the greenback against a basket of six major rivals, edged up 0.1 percent to 97.127, well above a nadir of 96.259 plumbed last Thursday, its lowest since October.

The US dollar rose about 0.5 percent to Y117.42, moving away from Friday's 2-1/2 week low of Y116.285. It slid 3.6 percent last week, its biggest weekly drop since July 2009.

"What we are seeing today is a correction after overwhelming selling in the dollar we saw last week. It is just unwinding of positions, not fresh bets against the yen," said Koichi Takamatsu, executive director of forex trading at Nomura Securities.

The euro edged down about 0.2 percent to US$1.1137, though it remained in sight of Friday's three-month high of US$1.1250 scaled immediately after the headline figure of the payrolls data led investors to reduce their bets on further Fed rate hikes.

The Australian dollar added 0.5 percent to US$0.7094 after plunging nearly 2 percent against its US counterpart on Friday.