Asian shares, Nikkei recover as soft US data see QE staying on

Asian shares recovered on Friday as global markets recovered overnight after lacklustre US data eased concerns about an early end to the Federal Reserve's strong stimulus programme which has sharpened investor appetite for risk.

 

US stocks rose on Thursday after US GDP grew 2.4% in the first quarter, slightly less than first reported, new claims for unemployment benefits rose in the latest week and pending home sales rose 0.3% in April, below expectations of a 1.1% rise.

 

The dollar came under pressure from the weak data as well as improved economic confidence in the euro zone, which bolstered European shares and the euro.

 

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1% after touching a six-week low of 463.31 on Thursday. With a fall of about 4% so far in May, the index was set for its worst monthly performance in a year.

 

The CBOE Volatility index , which measures expected volatility in the Standard & Poor's 500 index over the next 30 days, eased on Thursday from a five-week high seen on Wednesday.

 

Australian shares inched up 0.2% after touching their lowest in nearly two months the previous session while South Korean shares opened 0.5% higher.

 

"The market will open up in positive territory. We expect foreign buying to continue on the back of the US dollar's weakness," said Park Jeong-woo, a market analyst at Samsung Securities, of Seoul shares.

 

The Nikkei stock average opened up 1.6% after tumbling over 5% to a five-week low the day before as the dollar's decline against the yen weighed on exporters.

 

The dollar fell to a three-week low of 100.46 yen on Thursday and its index , measured against a basket of six key currencies, also touched a three-week low, having hit its highest since July 2010 of 84.498 just a week ago. The dollar index was stable early in Asia on Friday and the dollar added 0.4% against the yen to 101.08.

 

The Nikkei had raced ahead and overshot even relative to the rapid rate of yen selling, which was inspired by expectations for bold reflationary measures by the Bank of Japan, so corrections to Japanese stocks may be steeper than the change in currencies. In the past week, the Nikkei shed 15% compared to the dollar's 3% drop against the yen.

 

"Given the fact that markets embraced a sliding yen as a sign that central bank intervention continued to offer a sizable tailwind for equities, we have to raise the red flag on what if it doesn't - at least until it does again?," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, in a note to clients.

 

"We must acknowledge that there are several headwinds brewing that could trip up investors."

 

The heightening volatility in Japanese equities and the yen had come hand-in-hand with the surge in benchmark 10-year Japanese government bond yields to a one-year high.

 

The jump in JGB yields was partly in line with rising US yields but it also underscored the risk of putting too much confidence in the BOJ's aggressive bond buying plan alone to contain increases in Japanese yields, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute, in a research note.

 

"The Japanese government's growth strategy plan due to be unveiled early next month will play a significant role in determining market trends going forward," Kumano said.

 

The euro recovered the $1.30 level and reached a three-week high on Thursday, encouraged by the bigger-than-expected improvement in the European Commission's economic confidence survey, showing a pick-up in morale in the euro zone's five largest economies.

 

US crude futures were down 0.2% at $93.41 a barrel.