GLOBAL MARKETS-US economy fears plague stocks, buoy bonds
HONG KONG, Aug 1 (Reuters) – Asian investors balked at ugly U.S. economic data and a
grim outlook for Japanese banks, causing stocks to sag and safe-haven bonds to perk up on
Friday, while oil fell further after its biggest monthly drop since 2004.
A surprise jump in U.S. weekly jobless claims, weaker than expected second-quarter gross
domestic product numbers and a shock revision of data that showed the U.S. economy
shrank in the final quarter of 2007 undermined the dollar, oil prices and hopes for a
speedy recovery.
The triple whammy of sour data, plus a quarterly earnings result from Exxon Mobil
<XOM.N> that fell short of expectations [ID:nN31345433], drove the Dow Jones industrial
average <.DJI> down 1.8 percent on Thursday.
Asian shares followed suit on Friday, with Tokyo’s stock market troubled by the
performance of Japanese banks after sharp declines in first-quarter profitability at Mizuho
Financial Group <8411.T> and Sumitomo Mitsui Financial Group <8316.T>.
”While everyone has been worried about the subprime, it has become clear that the
problem for Japanese banks is not the subprime, but everything else,” said Nana Otsuki,
banking analyst at UBS Securities in Tokyo, after the banks reported on Thursday.
Tumbling profits also hit electronics makers NEC Corp <6701.T> and TDK Corp <6762.T>,
contributing to a 2.2 percent drop in the Nikkei index <.N225> by 0230 GMT.
Investors were also cautious ahead of a U.S. July employment report later on Friday.
”Investors are reluctant to buy shares ahead of U.S. economic events,” said Mitsuo
Shimizu, deputy general manager of equity department at Cosmo Securities.
MSCI’s index of Asia stocks outside Japan <.MIAPJ0000PUS> sagged 1.5 percent.
Sydney’s S&P/ASX 200 index <.AXJO> fell 1.6 percent. General insurer and bank Suncorp
Ltd <SUN.AX> led the decline, plunging as much as 18.5 percent and setting it up for its
biggest one-day fall on record, after it warned on 2008 profits.
The flight from equities into safe-haven securities sent the yield on 10-year Japanese
Government Bonds <JP10YTN=JBTC> to a three-month low of 1.505 percent on Friday,
although trade remained relatively light ahead of U.S. data.
OIL CHECKS DOLLAR SLIDE
Equities took little heart from a continuing sell-off in oil, normally a sign of cheaper fuel for
energy-hungry companies.
U.S. crude oil fell 0.7 percent to $123.25 a barrel <CLc1> in early Asian trade, after falling
more than 2 percent on Thursday, capping the market’s worst month in more than three
years, as the weak U.S. data reinforced worries about shrinking demand in the world’s top
energy consumer.
Demand worries have pulled oil down from a record above $147 a barrel hit on July 11,
the peak of a six-year rally set in motion by an Asian economic boom. Oil’s 11.4 percent
loss for the month of July marked the biggest monthly loss in percentage terms since
December 2004.
The fall in oil contributed to the steepest monthly drop in 28 years for the Reuters-Jefferies
CRB <.CRB> commodities index, which lost 10 percent in July, the biggest drop since it fell
10.5 percent in March 1980. The index had gained almost 20 percent in the April-June
quarter.
The latest fall in oil helped halt a slide in the U.S. dollar, which retreated against the yen
<JPY=> on Thursday.
The wait-and-see mood held sway over the market ahead of the U.S. payrolls release later
on Friday, with the dollar little changed from late U.S. trade near 107.80 yen <JPY=> after
hitting a one-month peak of about 108.34 yen on Wednesday.
”The dollar proved surprisingly resilient despite Thursday’s downbeat data,” said
Motonari Ogawa, director of forex trading at Barclays Bank in Japan.
”No doubt the jobs data will generate a host of opinions, but the market is likely waiting for
a surprise — whether be it an upside or a downside — as the next catalyst,” said Ogawa.
The euro fell 0.2 percent to $1.5565 <EUR=>. Traders said a recent string of weak
European data was weakening the euro against the yen in Asian trade and undermining the
euro versus other currencies.
