Calm returns to Asia markets as US data boosts US dollar

[HONG KONG] Calm returned to Asian markets Wednesday, with equities stabilising after a two-day rally, as the US dollar strengthened on upbeat US economic data.

Volatility eased as traders focused on the world economy and corporate earnings after a week dominated by the dramatic increase in tensions over North Korea, which triggered a global sell-off before prices bounced back Monday.

The greenback rose after official figures showed US consumers splurged in July, with retail data spurred by strong auto and department store sales.

However, Wall Street finished little changed as the strong statistics were offset by disappointing earnings reports.

The Nikkei, which made strong gains Tuesday after finishing at its lowest level for more than three months the previous day, ended marginally down in light trade, even as the weakening yen boosted exporters.

Hong Kong was higher in afternoon trade ahead of delayed results from the city's flag carrier Cathay Pacific. The airline was expected to announce a heavy loss of HK$1.2 billion (S$209.47 million) for the first half of the year, according to a Bloomberg survey.

Seoul, which was closed Tuesday for a public holiday, rose by the close of play.

"Volatility declined on international markets ... with US stock markets returning to their moribund state," said Ric Spooner, an analyst at CMC Markets in Sydney.

"This has provided a neutral lead for the local market where the main focus will be on the profit reporting season." However, Shanghai closed slightly lower as traders digested a warning from the IMF Tuesday that China's massive debt is on a "dangerous trajectory", raising the risk of a sharp slowdown in growth.

The International Monetary Fund urged the world's second largest economy to change course and press on with structural reforms, even as it maintained its forecast of 6.7 per cent growth for this year.

The US retail sales data increased expectations of a December rate hike by the Federal Reserve, offering more support to the greenback's recovery after it slumped to eight-week lows under 109 yen at the height of the North Korea crisis last week.

"It's another sign the US economy is on the track the Fed has articulated," said Greg McKenna, an analyst at AxiTrader.

The US dollar was broadly stable against the euro and pound, while it rose against the yen in afternoon forex trade.

Analysts said the greenback was also supported by North Korea tensions easing as traders cashed out of safe haven assets, but Oanda's Stephen Innes cautioned the US unit was not out of the woods yet.

"Given that the US and South Korea have military drills scheduled for next week, which could ratchet up the disruptive rhetoric, traders may wait for the dust to further settle before over committing to the current move," he said.

On commodities markets, oil was up in afternoon trade after an industry report indicated stronger demand in the United States.

American Petroleum Institute (API) said US commercial crude stockpiles declined by 9.2 million barrels last week, ahead of US Energy Information Administration data later Wednesday which could further buoy prices.

However, lingering concerns remained about oversupply, with US shale oil production expected to remain robust and doubts over compliance with Opec-led output cuts.

European stock markets advanced at the start of trading on Wednesday, with London's benchmark index rising ahead of British jobs data.

AFP