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22 May 2024

Global stocks stay nervy despite lull in commodity boom

By Agencies

Asian shares mostly fell on Wednesday, as fear of impending US and Japanese recessions and efforts to cool overheating economies in China, Vietnam and Australia weighed.


European stocks were expected to put in a better performance after a five-day decline, with financial bookmakers predicting gains of half a per cent or so for major indexes in London, Frankfurt and Paris.


The dollar steadied near record lows, and markets for oil, gold and other metals also paused for breath after prices surged unchecked for almost a month.


Traders waited to see if the commodities boom would resume or falter, with slowing US growth and easing supplies weighed against hot Asian demand.


In China, the motor of the commodities boom over the last two years, Premier Wen Jiabao used his annual state of the nation report to warn parliament of the dangers of supercharged growth.


"The current price hikes and increasing inflationary pressures are the biggest concern of the people," Wen told nearly 3,000 deputies of the National People's Congress.


Fear of economic overheating has also been mobilising China's communist neighbour Vietnam, where the Ho Chi Minh Stock Exchange index has tanked amid government efforts to soak up liquidity. The index fell more than 4 per cent on Wednesday and is the world's worst performing this year, down 37 per cent.


"The government is doing the best it can to turn this around because it's getting super ugly," said Robbie Davis, head of proprietary trading at VinaCapital.


Booming growth has also troubled central bankers in Australia, where investors fear rising interest rates will take a bite out of company profits and hurt banks.


Australian bank stocks like Westpac Bank started well, cheered by talk of a rescue plan for US bond insurer Ambac Financial Group Inc and hopes Tuesday's domestic rate rise would be the last for a while, but turned negative as worries about credit markets and a US recession crept back.


The benchmark S&P/ASX 200 index ended down 0.1 per cent, contributing to a 0.6 per cent fall in MSCI's index of non-Japan Asia, which is down 12 per cent this year.


Japan's Nikkei average closed down 0.2 per cent.


Dollar stay weak


China's Shanghai Composite was down 1.9 per cent but Taiwan's main TAIEX index shrugged off the pessimism to rise 0.2 per cent, closing at its highest in more than two months, with buyers hoping that a presidential election on May 22 would open the door to more business with China.


"Investors are buying up selected stocks from all sectors which could see big gains from a post-election rally, but the looming concern is still the status and health of the US economy," said Paradigm Asset Management President Kevin Yang.


The dollar, which has plunged almost 5 per cent against the yen in a week, stabilised at about 103.4 yen as traders looked for more signs of a US recession ahead of the week's most anticipated data release, Friday's US payrolls figures.


One signpost due later on Wednesday is the Institute of Supply Management's (ISM) index of service sector activity.


"If we see a weak ISM reading and then weak jobs figures later in the week, we could see a push in the dollar/yen towards 100 yen," said Hideki Amikura, a forex manager at Nomura Trust and Banking.


Fear of a US recession is echoed by worries about growth in Japan, where fourth quarter corporate capital spending data on Wednesday showed a 7.7 per cent drop, the biggest fall in five years.


"Rising raw material prices hurt manufacturers' earnings, while slack domestic demand, slow sales and the negative impact of tighter construction rules hit non-manufacturers," said Naoki Iizuka, a senior economist at Mizuho Securities.


The growth worries drove up demand for Japanese government bond futures. March 10-year futures rose 0.30 points to 138.74, nearing a one-month high of 138.93.


Equity buyers also took some heart from a modest correction in oil, which fell below $100 (Dh367) a barrel on Tuesday for the first time in three days after recession fears resurfaced and traders anticipated data due later on Wednesday would show US oil inventories rising.


US crude oil was 22 cents higher at $99.74 (Dh366.05) and gold prices held steady at $964.50/5.30 after tracking the reversal in oil. (Reuters)