Shares fall, dollar rises, amid earnings gloom

Posted at 10/10/12 12:44 PM

SINGAPORE - Asian shares fell on Wednesday, with Japan's stocks sliding more than 1.5 percent to a two-month low, and the safe-haven dollar firmed on concerns that the corporate results season will reveal weaker earnings in the face of flagging global economic growth.

Equity markets have been rallying since hitting their 2012 low in early June, with action from major central banks to support fragile economies giving a renewed lift last month, but caution has set in as the third quarter results season begins.

"History is not on the side of those who expect the market to continue to prosper once the earnings cycle has turned," said John Higgins, senior markets economist at Capital Economics, in a note.

The euro slipped, with a rise in Spanish bond yields as Madrid keeps markets guessing over whether it will request an international bailout and violent protests greeting German Chancellor Angela Merkel on a visit to Greece underlining how far the region's debt crisis is from resolution.

Growth-sensitive commodities such as oil and copper and currencies like the Australian dollar were under pressure, while the retreat from riskier assets boosted safe-haven government debt, with Japanese government bonds (JGB) following U.S. Treasuries higher.

Japan's Nikkei share average fell 1.9 percent, while MSCI's broadest index of Asia Pacific shares outside Japan fell 0.5 percent.

U.S. stocks fell around 1 percent on Tuesday, with shares of Intel, the world's largest semiconductor maker, losing 2.7 percent after downgrades from at least two brokerages. S&P 500 futures traded in Asia slipped 0.2 percent.

Asian technology stocks were hit by Intel's weakness, with the tech sub-index the biggest drag on the MSCI Asia ex-Japan with a 1 percent decline. South Korean heavyweight Samsung Electronics fell 2.0 percent.

Earnings warnings

Companies including FedEx Corp, Caterpillar Inc and Hewlett-Packard Co have warned about earnings, citing weak demand in Europe and China.

Thomson Reuters data shows analysts expect quarterly earnings for S&P 500 companies to decline about 2.3 percent from the year-ago period, the first fall in three years.

The International Monetary Fund said in its semi-annual check on the world's financial health on Wednesday that the euro area's debt crisis was the main threat and the risks to global financial stability had risen in the last six months, leaving confidence "very fragile".

The report adds to the gloomy backdrop ahead of the IMF's meeting to be held in Tokyo later this week. On Tuesday, the Fund said the global slowdown was worsening and cut its growth forecasts for the second time since April.

Mounting pessimism about the corporate and macroeconomic outlook drove investors towards government debt, with the 10-year JGB yield falling half a basis point to 0.765 percent, following a fall in benchmark Treasury yields on Tuesday.

The euro fell 0.2 percent to around $1.2850, while the dollar rose by a similar percentage against a basket of major currencies.

"Currencies will generally take their cue from stocks," said Junya Tanase, chief FX strategist at JPMorgan Chase. "Markets overnight turned against risk and whether that will be reversed will depend on how equities react to U.S. third-quarter earnings results."

Oil fell, with Brent crude dropping nearly 60 cents to below $114 a barrel, as growth worries overcame the supply concerns driven by tensions in the Middle East that had been pushing crude higher in recent days.

"Oil has been falling as investors weigh supply risks against weaker demand," said Ben Le Brun, a market analyst at OptionsXpress in Sydney. "A lot of growth expectations are being revised down, especially in China."

Copper and gold prices were steady.