The global markets rattled by Bernanke's comment that tapering of QE measure might begin as soon as later this year and the asset purchase could end mid-2014. FOMC meeting yesterday turned out to be more hawkish than previously anticipated with policymakers seeing 'diminished' downside risks to the economic outlook. Meanwhile, the Fed was not worried about the weak inflation level.
At the press conference on Wednesday Fed chairman Ben Bernanke suggested that he was optimistic about the U.S. economy and that the Fed might start scaling back its massive $85 billion-a-month bond-buying program this year if conditions continue to improve. The Fed could end the program by the middle of next year, Bernanke said. The Fed's latest set of economic projection showed downward revision unemployment rate and upward revision of 2014 GDP growth estimate.
Meanwhile, risk sentiments damaged further after Markit/HSBC data showed activity in the China's vast manufacturing sector weakened further in June to a 9-month low. The Chinese PMI (Purchasing Managers Index) fell to 48.3 in June, down from 49.6 in May. Drifting further away from 50 breakeven level suggests that manufacturing sector is having deeper contraction ahead. HSBC chief China economist Qu Hongbin noted that manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures. But economist Qu noted that the government would prefer to use reforms rather than stimulus to sustain growth and that would likely have limited short-term impact. Thus, Q2 growth in China would be slightly weaker.
In the Asia Pacific region, Japan's share market benchmark Nikkei Stock Average closed 1.7% higher at 13230.13 after reversing earlier losses on Friday, June 21, 2013, thanks to a recovering dollar and bargain-hunting. For the week, the index added 4.3%, its first positive weekly gain in five weeks. Year-to-date, the Nikkei is up 27%.
Japan's premier bourse had lost more than 2% in the first few minutes as dealers took a cue from the biggest one-day fall of the year for the Dow on Wall Street. Worries over a likely end to the Federal Reserve's hefty stimulus measures this year and poor Chinese manufacturing data sent investors running for cover. But the benchmark index recouped lost ground quickly and extended gains from mid-afternoon thanks to dips buying and covering short positions. Meanwhile speculative buying in the futures also accelerated the pace in cash segment. The range between the sessions' high and low was 627 points.
Repeat buying of Nikkei stock-index futures spurred arbitrage buying of cash stocks, in lieu of any significant buying incentives. The view is that investors who had sold shares at the beginning of the day due to Wall Street losses were now covering their positions.
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In Australia, Australian stock market closed lower, but well off the morning's lows, as losses in financials and in gold stocks was offset by gains in materials and industrials stocks. The broader All Ordinaries finished 0.42% down at 4723.80, after falling as low as 4668 early today. For the week, the index has lost 1.1%, trimming its gains for the year to date to just 1.3%.
Gold stocks were the worst performers on the Australian market on Friday, reflecting the falling price of the precious metal. The price of gold slumped by US$87 an ounce overnight; a 6.4 per cent fall. The lower gold travels, the harder it becomes for the precious metal producers to maintain margins and improve profitability. Newcrest Mining Co dropped 3.7% to A$10.35. Silver Lake Resources shed 17% and Medusa Mining lost 8%.
In China, Chinese share market declined for third day in row, with the benchmark Shanghai Composite index down by 0.52% to 2073.10, the lowest level in six months, because of tight liquidity and signs of downside risks in the economy. For the week, the Shanghai Composite index lost 4.1%. Year-to-date, the benchmark index is down 8.6%.
A spike in the two short-term money-market rates to record highs contributed to steep declines in domestic stocks amid speculation that the cash crunch has led to severe liquidity problems for some Chinese banks.
China's two shortest-term interbank funding costs moderated a bit on Friday after surging to record highs on Thursday. The benchmark weighted-average seven-day bond repurchase rate was at 9.2% after surging to a record high of 13.50% on Thursday, while the overnight repo rate was at 8.8%, eased from a level of 14.005% recorded in previous session.
Banks and financials declined the most today in the Shanghai market on liquidity crunch woes. China Construction Bank paced losses for lenders. The shares fell 3.8% to 4.08 yuan, adding to a 13% loss this week. Industrial Bank Co. retreated 1.2%, extending its drop this week to 6.4%.
In Hong Kong, city shares fell for second straight day, with Hang Seng Index finished 119.56 points down at 20263.31 after briefly sliding below the psychologically-important 20,000-point level for the first time in more than nine months. The gauge has lost 3.4% this week, a sixth week of declines and the longest losing streak since October 2008.
the Census and Statistics Department (C&SD) said on Friday that total employment in the private sector surveyed increased by 1.9% or 50 000 persons in March 2013 compared with a year earlier. The total number of vacancies was 80 170, representing an increase of 15% or 10 200 over the preceding year.
In India, the Indian stock market benchmark the BSE benchmark S&P Sensex provisionally closed 0.22% higher at 18761.22 on the back of fresh buying mainly in IT, tech, power and auto sector stocks. Besides, recovery in the rupee from record lows also underpinned bargain buying.
Stocks of Indian software exporters caught investors' fancy on hopes a weak rupee would improve their overseas earnings. The country's software exporting companies get over 60 per cent of their revenue from the US and European markets.
Elsewhere in the region, South Korea's Kospi declined 1.5%. Taiwan's Taiex shed 1.3%. New Zealand's NZX50 erased 0.8%. Indonesia's JKSE fell 0.4%. Singapore's STI slipped 0.3%. Malaysia's KLSE was down 0.4%
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