GLOBAL MARKETS
Asian stocks slip as oil hovers near record
By Kevin Plumberg
Reuters
First Posted 11:47:00 07/04/2008
HONG KONG -- Asian stocks slipped on Friday as record high crude oil prices threatened to jeopardize earnings and curb consumer spending, with the uncertain economic outlook following US jobs data boosting safe-haven government bonds.
This week has been punctuated by stagflation fears and deteriorating sentiment after the Dow Jones industrial average slipped into a bear market this week, down more than 20 percent from October highs, joining Asia markets and pushing investors into safety-first mode.
The unfavorable combination of feeble growth and high inflation known as stagflation has caused many analysts to adjust downward their expectations for regional equities and investors to pull back on their willingness to take risks for higher returns.
"Asia is suffering from its own inflationary bout. That is the most important feature right now because it is forcing monetary policy to be tighter at a time when headwinds from the US are increasing," said Sanjay Mathur, an economist with Royal Bank of Scotland in Singapore.
"All this contributes to the rise in the risk premium in Asia assets."
Japan's Nikkei share average fell for a 12th day in a row, after posting their longest string of losses in 54 years, dragged down by technology firms such as Tokyo Electron and Advantest Corp.
The pan-Asia MSCI index fell 0.2 percent, adding to the year's 16.5 percent decline.
Asia-Pacific shares traded outside of Japan were largely steady, according to an MSCI index, but were hovering around a 10-month low.
Hong Kong's Hang Seng bucked the broad declining trend and rose 0.9 percent, with Industrial & Commercial Bank of China among the biggest boosts to the index after China's biggest bank issued a positive earnings outlook.
Australia's benchmark rose 0.8 percent.
US markets will be closed on Friday because of a public holiday.
US jobs data released on Thursday showed employers cut workers for a sixth straight month in June for the longest such streak since 2002 and the country's vast service sector unexpectedly contracted, underscoring the economy's frailty.
ENERGY SHOCK
Japanese government bond yields, which move in the opposite direction of prices, slipped after the European Central Bank raised its benchmark interest rate as expected but gave little indication that more increases were to come.
The 10-year yield fell 3.5 basis points to 1.635 percent, having fallen about 25 basis points since mid June when global equity markets tumbled.
Short-dated US Treasury yields dropped on Thursday after US payrolls data showed the job market contracted for the sixth consecutive month and private sector job losses amounted to 91.000 in June.
Other indications have shown that investors in Asia are demanding a higher premium to hold assets in a growingly risk-averse environment.
For example, the iTRAXX Asia ex-Japan high-yield index has risen to a three-month high, climbing nearly 100 basis points in the last month.
Compounding inflation fears, oil prices rose to a record high of $145.85 a barrel, up more than 50 percent this year, and the price of soybeans, a key import for China, hit a record high for the fourth time this week.
The central bank of the Philippines on Friday confirmed that the Southeast Asian economy has inflation in double-digits, joining Vietnam and India. Stephen Jen, head of currency strategy with Morgan Stanley in London, said that high energy prices are a "game changer" for Asia and will have long-term consequences for the region and particularly for China.
"While many investors and analysts are concerned about inflation containment and the effects of monetary reactions, higher price levels of energy, not just inflation, will hurt Asia," he said in a note to clients.
"In other words, even if oil/energy prices stabilize now, this will be a very significant shock to Asia, especially China."
The euro edged up 0.1 percent to $1.5711 after on Thursday rising as high as $1.5893, the highest since late April and edging closer to an all-time peak of $1.6020 that was also hit in April. The dollar slipped 01. percent to 106.65 yen.
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