Nikkei weighs on markets as investors mull US data

Wednesday, June 5th, 2013 | Finance News

LONDON (AP) — Disappointment at Japan's latest package of measures designed to boost its economy coupled with continuing uncertainty over the course of U.S. monetary policy to weigh on markets Wednesday.

Japan's benchmark Nikkei 225 index had another day to forget as investors appeared disappointed at the lack of detail in a keynote speech on the economy from Japanese Prime Minister Shinzo Abe. The Nikkei closed down 3.8 percent at 13,014.87, another big swing that means it has fallen around 20 percent from its peak in mid-May — the commonly used definition of a bear market.

"Abe's speech today unveiling his growth strategy failed to live up to the market's expectations, revealing little that was new and focusing rather too much on long term aspirations for most tastes," said Simon Derrick, a senior analyst at Bank of New York Mellon.

For much of this year, the Nikkei had been the darling of stock investors as it rose by nearly a half as investors hoped a big monetary stimulus from the Bank of Japan would finally get the world's number 3 economy out of its near two-decade stagnation.

The latest setback in the Nikkei kept traders around the world on edge.

In Europe, the FTSE 100 index of leading British shares was down 1.5 percent at 6,461 while Germany's DAX fell 0.8 percent to 8,229. The CAC-40 in France was 1.1 percent lower at 3,883.

In the U.S., the Dow Jones industrial average was down 0.4 percent at 15,121 while the broader S&P 500 index fell the same rate to 1,624.

Slightly worse-than-expected figures from private payrolls firm ADP had little impact. ADP said 135,000 private jobs were added in May, below market expectations for a 165,000 rise.

Given that the ADP survey has rarely been replicated in the official monthly figures, which are due on Friday, little was added to the debate over the whether the U.S. Federal Reserve will start reducing the amount of government bonds it has been buying in the markets as part of its stimulus program. For the past few weeks, market directions have largely depended on the vagaries of the U.S. data and their implications for the future of the Fed's monetary stimulus program.

The monthly non-manufacturing survey from the Institute for Supply Management later may have more of an impact. The equivalent manufacturing report on Monday was disappointing and reined in market expectations of an imminent tapering of the Fed's stimulus program.

"The market keeps its focus on the U.S. as the tug of war over the Fed's tapering continues," said Anthony Lam, an analyst at Credit Agricole CIB.

The Fed's monetary stimulus program has been a big boon to stock markets over the past few years. The latest purchases, amounting to $85 billion a month, have helped propel many global stock indexes to record highs this year. The purchases are designed to keep interest rates low and giving the U.S. economy a lift. A reduction in the amount purchased would indicate that the Fed is more confident about the outlook.

In the currency markets, the dollar has generally risen when expectations grew that the Fed would limit its stimulus program earlier than planned.

Ahead of the latest U.S. figures, the euro was down 0.1 percent at $1.3067 while the dollar was 0.5 percent lower at 99.63 yen. The rise in the yen may be counterintuitive given the performance of the yen but the Japanese currency often gains ground when investors are reluctant to take on risk — as evidenced by the performance of stock markets.

Elsewhere in Asia, Hong Kong's Hang Seng lost 1 percent to 22,069.24 while South Korea's Kospi fell 1.5 percent to 1,959.19. Australia's S&P/ASX 200 dropped 1.3 percent to 4,835.20. Benchmarks in Singapore, Indonesia, Thailand, the Philippines and mainland China fell.