Investment rationale for cyclical assets turned bearish after the United States Federal Reserve on Wednesday, 29 January 2014, ignored investor nervousness about capital outflows from emerging markets and took another gradual step toward exiting its controversial bond-buying program, remaining stoic in the face of market turmoil. As expected, the Fed decided to reduce the pace of monthly asset purchases to $65 billion, from January's $75 billion. The Fed will purchase mortgage-backed securities at a pace of $30 billion per month and add to its holdings of Treasury's at a pace of $35 billion per month beginning in February.
The Fed also signaled that it is likely to keep reducing its purchases in the coming months, citing a pickup in economic activity and improvement in the labor market. In addition to proceeding with plans to scale back its bond buying, the Fed made no changes to its other main policy plank: its pledge to keep interest rates low for some time to come. It has pledged to hold rates steady "well past" the point that the unemployment rate falls below 6.5% as long as inflation remains low.
Risk sentiments dampened further after the HSBC-Markit final reading of Chinese manufacturing signalled a deterioration of operating conditions in manufacturing sector for the first time in six months. After adjusting for seasonal factors, the HSBC Purchasing Managers' Index (PMI) posted at 49.5 in January, down fractionally from the earlier flash reading of 49.6, and down from 50.5 in December, underscoring a slowdown in Asia's biggest economy amid government efforts to clamp down on risky lending.
Among Asian bourses, shares of the Japan's market retreated as investors again fretted about the health of emerging economies after decision by the US Federal Reserve to taper their monthly asset purchase by an additional $10 billion. The benchmark Nikkei-225 index decreased 376.85 points to 15007.06, while the Topix index of all first-section shares withdrew 32.09 points to 1224.09.
Risk sentiments in Tokyo also hammered due to yen appreciation against the US dollar. In forex trade, the dollar fetched 102.44 yen compared with 102.25 yen in New York but well down from the 103.30 yen in Asia earlier Wednesday.
Financials were under pressure, with Mitsubishi UFJ Financial Group Inc down 3.37% and Nomura Holdings Inc down 3.90%. Shinsei Bank fell 8.1% after it cut its full-year consolidated net profit view.
Sumitomo Mitsui Financial Group Inc shares melted 5.34% after the lender said net profit rose 28% in the nine months through December, reaching roughly 94% of its yearly profit outlook.
Canon lost 1.8% despite posting a net profit increase Wednesday of 5% for the October-December quarter.
Kyocera lost 4.4% after revising down its full-year estimates as a result of the slowdown in smartphone-related orders.
Japanese government data released on Thursday showed Japanese retail sales increased 2.6% in December on a year-over-year basis. Sales in December from November increased 0.8%.
Japan Automobile Manufacturers Association said Thursday that auto demand in Japan is expected to drop 9.8% in 2014 as the sales tax increase in April will dent consumer sentiment. The decline will be the first and sharpest drop in three years after auto demand remained nearly flat last year with a 0.1% rise. JAMA expects auto demand to total 4.85 million vehicles this year, down from 5.38 million last year. This will be the lowest volume since 2011 when the industry was hit by an earthquake and tsunami. The association expects the reverse impact from the rush of car-buying ahead of the rise in Japan's sales tax rate to 8% from the current 5% in April to pull demand for the full year. In 2014, sales of mini vehicles with engine capacity of 660ccc will fall 12.4% to 1.85 million vehicles despite increasing demand for those small and inexpensive vehicles and those of bigger vehicles will decline 8% to 3 million, according to JAMA.
In Australia, Australian market finished weaker today, taking away the benchmark index's gains from the previous session on tracking weak cues from offshore markets. The benchmark S&P/ASX 200 index added declined 40.9 points to 5188.10, while the broader All Ordinaries lost 41.20 points to 5199.40.
Shares of Australian materials and resources companies dropped on profit booking following strong gain prior day. Resources giant BHP Billiton skidded 0.5% to A$36.69, while rival Rio Tinto closed steady at A$65.80 after the company won approvals to expand its Mt Thorley-Warkworth coal mine in New South Wales.
Junior iron ore miner Fortescue Metals Group sank 1.3% to A$5.23 on news that weather problems will force its total iron ore shipments toward the bottom end of previous guidance. The iron ore miner had originally promised to export between 127 million and 133 million tonnes in the 2014 financial year, but it today predicted that it would export exactly 127 million tonnes
Australia's biggest oil producer Woodside Petroleum lost 1% to A$37.49 as Brent crude oil dipped to $US107.79 a barrel. Mining services provider Forge Group fell 17.1 per cent to A$0.68 after announcing the latest in a series of profit downgrades on Wednesday and flagging the business is up for sale.
Treasury Wine Estates (TWE) declined 20% to A$3.64 after a profit warning. Weaker than expected sales in Australia and China have seen the wine maker cuts its full year earnings forecast from between a$230 million and A$250 million to between A$190 million and A$210 million for the 2013/14 financial year. First half earnings are seen to be in the range of A$41 million to A$46 million, compared A$73 million last year.
On the industry news front, the Housing Industry Association, an umbrella group for major home builders, said on Thursday that new homes sales in Australia fell 0.4% in December from November, with a 6.6% fall in apartment sales--an often volatile segment of the housing sector--behind the weakness. During 2013, new home sales rose by 14.4% from the previous year, the first year of growth since 2008, the group said.
In China, Mainland China stock market closed lower as risk off selling triggered across the board after data showed the Chinese manufacturing sector contracted in January. The Shanghai Composite Index provisionally ended 16.83 points down at 2033.08, while CSI 300 Index shed 25.33 points to 2202.45.
Among SSE sectors, all 10 sectors of the SSE index finished lower, with consumer staples sector was worst performer amongst the SSE sectoral peers, falling 1.6%, followed by energy down 1.4%, materials down 1.3%, information technology down 1.2%, financials down 1.1%, consumer discretionary down 0.7%, telecommunication services down 0.6%, utilities down 0.5%, industrials down 0.3% and healthcare down 0.1%.
The People's Bank of China suspended open market operations on Thursday, citing the banking system has adequate funding going into the Chinese New Year holiday. Mainland markets will be closed from January 31, to reopen on February 7. The bank's inactivity today means CNY75 billion was injected this week on a net basis, versus CNY375 billion last week.
The PBOC added CNY150 billion to the interbank market via 14-day reverse repos during Tuesday's open market operation. That followed last week's CNY375 billion addition, transactions which included a combined CNY300 billion added via 21-day repos on Tuesday and Thursday. The unusual tenors on the repos are designed to cover the New Year period.
In Hong Kong, shares of the HK market closed lower in shortened trading session, as continued stimulus tapering by the U.S Federal Reserve dented global market sentiment. The benchmark Hang Seng Index provisionally finished 106.19 points higher at 22035.42.
Shares of technology companies retreated, as Chinese PC maker Lenovo Group tanked 8.21% after announcing plans to acquire Motorola Mobility from Google Inc for $2.91 billion as Lenovo aims for a bigger presence in the U.S. market. Software developer Kingsoft Corp dropped 1.17%.
Casino stocks closed mixed. Sands China rose 2.48% after it reported an inline 4Q results. The Hong Kong-listed unit of Las Vegas Sands Corp reported net income increased 40% year-on-year to $467 million in the fourth quarter.
Galaxy Ent (00027) also gained 3% to HK$76.3. Wynn Macau rose 1.38, while MGM China Holdings shed 0.65%. Melco Crown Entertainment shed 1.84%.
In India, volatility ruled the roost during the last one hour of trade as the key benchmark indices trimmed losses soon after extending intraday losses. The barometer index, the S&P BSE Sensex, trimmed losses after hitting its lowest level in more than nine weeks. The Sensex was provisionally down 138.22 points or 0.67%, up 165.30 points from the day's low and off 19.33 points from the day's high.
The high volatility was triggered by traders rolling over of positions in the futures & options (F&O) segment from the near month January 2014 series to February 2014 series. The January 2014 F&O contracts expired today, 30 January 2014.
The market sentiment was hit adversely by the US Federal Reserve's decision of a further reduction in its monthly bond purchases and Fed's indication that it is likely to keep reducing its purchases in the coming months, citing a pickup in US economic activity and improvement in the US labor market.
Among the 30 Sensex shares, 18 fell, 11 rose and one remained unchanged. Index heavyweight and cigarette major ITC was unchanged at Rs 325, with the stock recovering sharply in late trade. The stock hit a high of Rs 325.60 and low of Rs 318.35. Index heavyweight Reliance Industries fell 1.26% to Rs 826.20 in volatile trade. The stock hit a high of Rs 834.20 and low of Rs 823.
PSU OMCs dropped in choppy trade as higher crude oil prices and weakness in rupee against the dollar spared worries of higher cost of crude imports. PSU OMCs import majority of their crude oil requirements. BPCL (down 0.38%), HPCL (down 2.98%) declined. Indian Oil Corporation (IOC) rose 0.96%. The three public sector oil marketing companies (PSU OMCs) -- BPCL, HPCL and IOC -- suffer revenue loss or under recoveries on domestic sale of diesel, LPG (cooking gas) and kerosene at a controlled price. The government decontrolled pricing of petrol in 2010.
Elsewhere in the Asia Pacific region, New Zealand's NZX50 index shed 0.67%. Indonesia's Jakarta Composite index added 0.03%. Malaysia's KLSE Composite added 0.83%. Singapore's Straits Times index close 0.47%. Taiwan and South Korea market closed for holiday.
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