Yen rises amid china growth concerns as US index futures swing

[HONG KONG] The yen gained against major peers and most Asian stocks retreated after the biggest drop in China's industrial-firm profits in almost four years underscored the slowdown in the world's second-largest economy. US index futures fluctuated after Friday's drugmaker-led losses.

The yen was stronger against all major currencies measured by Bloomberg, sending the Topix index lower as more than 1,000 companies traded without the right to a dividend. Mainland Chinese shares were mixed after the profits data. Standard & Poor's 500 Index futures pared losses after the US benchmark capped its third drop in four weeks on Friday. Markets in South Korea, Hong Kong and Taiwan closed for holidays. Ten-year Treasuries rose with Australian bonds. Crude oil retreated, snapping a two-day gain.

"While it's unlikely that stocks will rebound strongly under these uncertain circumstances, the global economic situation isn't as bad as to warrant a further plunge," said Koji Fukaya, the chief executive officer at FPG in Tokyo, which provides over-the-counter currency derivative products for companies. "US data this week is important and even if results are mixed, it won't affect the baseline as the Fed made clear its intention to raise rates this year. The dollar is set to gain broadly." Profit at Chinese industrial companies plunged 8.8 percent in August from 12 months earlier, data today showed, with losses deepening even after five interest-rate cuts since November and government efforts to accelerate projects. Efforts by Federal Reserve Chair Janet Yellen and a host of other policy makers to talk to up the prospect of higher borrowing costs in 2015 have so far failed to impress traders, who rate the chance of liftoff this year at less than 50 percent. Biotechnology shares went from being among this year's best performers to entering a bear market on Friday.

Currencies The yen climbed 0.2 per cent to 120.33 per dollar by 2:17 pM in Tokyo, and added 0.5 per cent to 134.42 per euro. The joint currency slipped 0.2 per cent to US$1.1178 following Friday's 0.3 per cent drop.

The Bloomberg Dollar Spot Index, a gauge of the US currency against 10 major peers, was little changed after rising 1 per cent last week, the most since mid-July.

Last week's dollar advance was fueled by Fed Chair Yellen, who reiterated that she sees a case for higher borrowing costs in 2015. St Louis Fed chief James Bullard told reporters Friday that he'd "like to get going" on rate hikes but that he's not yet clear whether there's been enough data between now and the next Fed Open Market Committee meeting in October to make that call.

There's just a 16 percent chance of an increase next month and about a 45 per cent probability that liftoff will occur in December, according to futures-trading data compiled by Bloomberg.

Stocks S&P 500 futures were little changed after a 2.7 per cent slump in health-care stocks left the US benchmark down 0.1 per cent on Friday. Futures on the Dow Jones Industrial Average and those on the Nasdaq 100 Index were also steady, paring losses of as much as 0.8 per cent.

The Nasdaq Biotechnology Index tumbled 13 per cent last week, the most in four years, with Democratic presidential hopeful Hillary Clinton igniting a selloff in drugmaker shares after suggesting there may be "price gouging" in the prescription pill market.

The MSCI Asia Pacific Index slipped 0.4 per cent Monday, with the Topix falling 1.2 per cent. The ex-dividend factor equated to a 10.8 point drag on the measure, which has fallen about 12 per cent since the end of June. The Nikkei 225 Stock Average slipped 1.4 per cent.

The Shanghai Composite Index pared losses to 0.3 per cent after sliding as much as 1.6 percent in the wake of the biggest industrial earnings drop since at least 2011. The number of shares bought and sold was about half of the 30-day average for the time of day as the country counts down to a five-day holiday starting Thursday.

The benchmark for the mainland's biggest equity venue lost 40 per cent from a June 12 peak through Friday amid an unwinding of speculative margin bets and concern that the government may struggle to meet its 2015 growth targets.

"The industrial-profit figure was well below the market consensus figure and is likely to add some downward pressure," said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co."There's little activity on the market with a long holiday coming later this week." Singapore's Straits Times Index fell 1.4 percent. Volumes in Australia were about 35 per cent below their 30-day average for the time of day, while the number of transactions in Japan was almost 27 percent below the average, according to data compiled by Bloomberg.

US Treasuries climbed, with 10-year yields falling two basis points, or 0.02 percentage point, to 2.14 per cent after rising three basis points last week.

Australian government debt tracked those gains, with rates on notes due in a decade also down one basis point to 2.68 per cent. Japanese 10-year yields rose one basis point to 0.33 per cent.

The prospect of higher borrowing costs has been undermining high-yield corporate notes, with the yield paid by US firms rising above 8 per cent for only the second time in four years. US junk bonds pay 654 basis points more than Treasuries, the most in three years, based on the Bloomberg indexes. The rout has been led by the debt of commodity and energy producers.

"I'm cautious on the credit market now," said Hajime Nagata, who invests in bonds in Tokyo for Diam Co, which manages the equivalent of US$144 billion. Energy and mining are suffering most, he said. "Investors are not willing to lend to these sectors." Commodities West Texas Intermediate futures fell as much as 1.2 per cent after climbing 2.3 per cent last week. US crude stockpiles are still almost 100 million barrels above the five-year average for this time of the year even after dropping for two straight weeks.

Copper advanced 0.8 per cent in London, snapping four days of declines. Nickel for three-month delivery was little changed, while zinc climbed 1 per cent.

BLOOMBERG