Global Markets – Asian shares step back from 2007 peak

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Asian shares flinched from testing their 2007 record peak on Wednesday as investors booked profits in high-tech shares while oil prices hit three-year highs due to production cuts and fall in inventories.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped by 0.3 per cent after six straight days of gains until Tuesday that had taken it within a stone’s throw from the record high touched in November 2007.

Oil prices extended gains with U.S. crude futures hitting a three-year high on a tight supply balance due to OPEC-led production cuts and a sharper fall in U.S. crude inventories.

The American Petroleum Institute said late on Tuesday crude inventories fell by 11.2 million barrels in the week to Jan. 5 to 416.6 million, far bigger than analysts’ expectations for a decrease of 3.9 million barrels.

U.S. West Texas Intermediate (WTI) crude traded at 63.49 dollars a barrel, up 0.9 per cent for the day, after rising as high as 63.53 dollars earlier. Brent crude rose 0.6 per cent to 69.22 dollars per barrel.

Information technology shares led the decline with a 1.1 per cent fall as Samsung Electronics extended losses. The tech company’s profit guidance disappointed investors and raised worries the memory chip boom may be coming to an end.

Japan’s Nikkei also shed 0.2 per cent, slipping from 26-year highs hit the day before. “The rally has been a bit too fast. Investors are taking profits in high-flying hi-tech shares. But the earnings and economic outlook in Asia remains solid,” said Yukino Yamada, senior strategist at Daiwa Securities.

Indeed, expectations of solid corporate profit growth helped Wall Street’s major indexes extend the New Year rally to record levels for a sixth day on Tuesday.

“U.S. fourth-quarter earnings are expected to rise more than 10 per cent from the previous year.

“The market has been supported by the consensus that the goldilocks economy will continue while the Fed will raise interest rates only slowly,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Profits for S&P 500 companies are expected to rise 11.8 per cent in the fourth quarter, compared with an eight per cent increase a year earlier, according to Thomson Reuters I/B/E/S.

Some investors said risk sentiment had been boosted by an apparent easing in tensions in the Korean peninsula after North and South Korea agreed to future talks in their first official dialogue in more than two years.

 

Washington welcomed what it said was a first step to solving the North Korean nuclear weapons crisis, even though Pyongyang said those were aimed only at the U.S. and not up for discussion with Seoul.

In the currency market, the yen maintained the gains it made the previous day after the Bank of Japan trimmed the amount of its buying in long-dated bonds.

While the move was in line with the BOJ’s subtle reduction in its bond buying over the past year, the so-called ‘stealth tapering’, the reaction highlighted how sensitive markets are to a pullback in Japan’s massive stimulus.

“I don’t think yesterday’s operation is a hint of a policy change. But it highlighted the fact that unwinding of central bank stimulus will be a main theme this year. We could see more moves like this,” said a currency trader at a U.S. bank.

The euro eased to 1.1945 dollars, compared to 1.2028 dollars at the end of last week, due to profit-taking following the common currency’s big gains late last year.

The BOJ’s move also helped to raise the 10-year U.S. bond yield above its December high to 2.555 per cent, the highest since March last year, from 2.482 per cent late on Monday.