Asian shares struggle, commodities down as Fed disappoints

Asian stocks struggled and commodities fell broadly on Thursday after the Federal Reserve ramped up monetary stimulus by expanding ” Operation Twist“, but disappointed some investors who had been hoping for more aggressive measures.The US central bank, as expected, extended its programme of selling short-term securities and buying longer-dated ones, a move aimed at driving down borrowing costs, but did not signal a third round of quantitative easing.

MSCI’s broadest index of Asia Pacific shares outside Japan edged down around 0.2 percent, mirroring similar declines on Wall Street .

Japan’s Nikkei share average bucked the trend, rising 0.7 per cent as the yen weakened against the dollar, which should help Japanese exporters.

“The positive impact of a weaker yen should outweigh the disappointment about the US’s economic outlook and the lack of more powerful stimulus,” said Masayuki Doshida, senior market analyst at Rakuten Securities. “But there won’t be a sustained rally on the back of this.”

The Fed also slashed its forecast for US economic growth, hitting commodities sensitive to expectations for industrial demand.

Copper fell 1.1 per cent to around $7,465 a tonne and oil also lost ground. US crude dropped 1 per cent to $80.64 a barrel and Brent crude was down 0.6 per cent at $92.11, its lowest in 18 months.

A Reuters poll showed Wall Street’s top bond firms still see a 50 per cent chance of a third bout of quantitative easing or “QE3”, under which the Fed effectively creates money to fund large asset purchases, to stimulate the economy.

“Clearly, the tilt is to do more. QE3 is one of those options,” said Julia Coronado, chief economist North America at BNP Paribas in New York.

The decision to hold off on QE3 for now boosted the dollar against the euro and the yen and also hit gold, which had been rising as investors betting on QE3 had bought the precious metal as a hedge against currency depreciation.

The euro was down 0.3 per cent around $1.2665 on Thursday, while gold fell 0.2 per cent to just above $1,600 an ounce.

(curtsey: economic times)

Rupesh Yatesh Dalal
Head Research Department

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