Asian Markets Weekly Review: Bernanke and Beijing Set off Turbulence, But Nikkei Rebounds

Asian markets outside Japan ended the week lower. Investors blame a likely cutback in quantitative easing (QE) by the US later this year and China's slowing growth trajectory for the selling spree.

Speculation about the future pace of the US Federal Reserve's $85bn a month bond-buying programme, which has stimulated the US economy and the markets the world over for a while now, fuelled bearish sentiments through the week ended 21 June.

The Federal Open Market Committee, the Fed's all-powerful rate-setting committee, concluded its fourth meeting of the year on 19 June. On the afternoon of 19 June, speaking at a press conference in the US after the two-day FOMC meet, Federal Reserve Chairman Ben Bernanke said the central bank could begin to reduce its asset buys later this year if the US economy continues to improve, as Fed officials expect it to, and could end its bond purchases by mid-2014.

Most Asian markets outside Hong Kong opened the week lower, but gained thereafter, in cautious trade. Investors continued to tread cautiously on 18 June, unsure about the future pace of the Fed's QE programme.

Chinese stocks hit a 2013 low on 19 June, as the uncertainty of how the Fed would proceed on stimulating the US economy prevailed on the markets. On 20 June, Asian equities dropped, taking a double hit from Bernanke's speech and from Chinese government data that pointed to shrinking factory activity in the world's second biggest economy.

The following day, Asian equities hit nine-month lows after a sell-off on Wall Street. But stocks moved off Friday morning's lows, led by a recovery in Japan's benchmark Nikkei index. The Nikkei bounced back, after a stronger US dollar and rising US futures counterbalanced apprehensions surrounding the trimming of US monetary stimulus and China's liquidity crunch.

The Shanghai Composite was the worst performer, dropping 4.25% to 2,073.10 in five days of trade ending 21 June. Earlier in the week, China's finance ministry was unsuccessful in selling all the debt offered at an auction for the first time in almost two years. A cash squeeze threatens to aggravate a slowdown in China's economy.

Government data showed on Tuesday that home prices across a large number of Chinese cities rose in May. Realty stocks lost out on fears that policymakers could revisit monetary policies, aimed at stimulating the markets, amid rising prices. During the week, the vice-chairman of the China Securities Regulatory Commission reportedly told brokerage executives that IPOs were expected to hit the markets by end-July. Chinese regulators had prohibited listings last October to rid the stock markets of corruption.

On 20 June, HSBC's manufacturing Purchasing Managers' Index, which polls purchases made by factory managers, showed that China's factory activity dropped to a nine-month low in June, suggesting the economy was slowing down.

But it was the People's Bank of China's (PBC) "window guidance" to major state-owned banks, asking them to restart funds supplies to ease the liquidity crunch in the country, which helped pacify hassled money markets.

The Nikkei was the top performer during the week, rising 5.30% to 13,230.13 in the five days of trade ending 21 June. The Group of Eight (G8) leaders who met in Northern Ireland earlier in the week said they would continue to back Japan's stimulus initiatives.

The Hang Seng ended 4.01% lower to 20,263.31 in the five days of trade during the week pulled down by QE concerns.

South Korea's Kospi ended 3.60% lower to 1,822.83 in the five days of trade this week. Domestic producer prices have fallen for 10 months in a row in the country. Bank of Korea data points to lower demand in Asia's fourth-largest economy.

Uncertainty rules over the fate of the reopening of the Kaesong industrial complex closed down earlier this year. On 21 June, North Korea's UN envoy Ambassador Sin Son blamed the US for the recent rise in tensions on the Korean peninsula and demanded the dissolution of the UN command in South Korea.

Australia's S&P/ASX 200 was down 0.33% to 4,738.80 in the five days of trade. The Reserve Bank of Australia put out its first response to the 14 May budget in the minutes of its 4 June board meeting released on 18 June at which it left the cash interest rate unchanged at 2.75%.

"Members noted that the profile for the fiscal impact over coming years was broadly in line with the assumptions underpinning the forecasts for growth published in the (RBA) May statement on monetary policy," the minutes of the 4 June board meeting said.

Wall Street Battered

On Wall Street, indices were battered by Bernanke's comments and ended lower during the week ending 21 June. The Dow Jones Industrial Average finished the week 1.8% lower to 14,799.40.The S&P 500 index closed 2.11% lower to 1,592.43 in the five days of trading ending 21 June, while the Nasdaq ended 1.94% lower to 3,357.25 during the week.

"Based on the chairman's comments and our (US) unemployment rate forecast, we now expect a reduction in the pace of asset purchases to $70bn a month at the September meeting ($35 billion in Treasuries and $35 billion in agency MBS)," Dean Maki, the chief US economist at Barclays, said earlier this week.

"Based on our outlook for the (US) unemployment rate to fall to 7.0% in Q1 14, we expect asset purchases to be concluded by March 2014, a bit earlier than the mid-2014 expectation the chairman indicated in the press conference," Maki said.

The Week Ahead

Asian investors can track the Taiwanese unemployment rate on 23 June.

The action shifts to Europe early next week where the Ifo Institute of Economic Research will put out the Ifo German Business Climate Index on 24 June, which rates the current German business climate and measures expectations for the next six months. Italy will put out non-EU trade balance data.

0n 25 June, Italy's national statistics office will release annual retail sales data. The US will release home sales data for the month of May, alongside monthly core durable goods orders data that measures the change in the total value of new orders for long lasting manufactured goods.

On 26 June, the US releases quarterly GDP data forecast to remain unchanged at 2.4%. France too will put out quarterly GDP data the same day, while New Zealand releases its trade balance figures.

The Gfk German Consumer Climate Index data, which measures the level of consumer confidence in economic activity in Europe's leading economy, will be out the same day.

Japan will put out a raft of data on 27 June, including Tokyo's inflation numbers and two industrial production forecasts, while Korea will publish monthly and yearly industrial production numbers.

Germany will release its unemployment rate alongside unemployment change data, while the US puts out initial and continuing jobless claims data. Germany also releases monthly inflation data.

On 28 June, Thailand releases trade balance data while Japan releases housing and construction activity data. India will put out its foreign debt numbers, or the portion of the country's debt that was borrowed from foreign lenders including commercial banks, governments or international financial institutions.