Caution is in the air before the European weekend summit

<p>Asian stocks were slightly lower at noon in Tokyo trading, with the MSCI Asia Pacific index down by around 0.3%. There is an air of […]</p>

Asian stocks were slightly lower at noon in Tokyo trading, with the MSCI Asia Pacific index down by around 0.3%.

There is an air of caution across the market going in to this weekend’s European summit. Most are unsure if the summit will bring out a definitive plan and are accordingly not holding on to any unnecessary positions.

In regional stock markets, Japan’s Nikkei 225 was 0.1% lower, South Korea’s Kospi up 1.2% while Australia’s S&P/ASX200 was slightly in negative territory in late afternoon trading, down by around 0.2%.

Our focus this week on the BRIC economies continues. We wrote yesterday about Brazil’s rate cutting plans despite inflationary problems.

Today we note India. India’s rupee weakened this morning, past 50 per dollar for the first time since May 2009. Oil is India’s largest import item and domestic oil refiners are the greatest purchasers of dollars in the local currency market.

Gold merchants also stepped up dollar demand as they scaled up imports of the precious metal before Diwali — the festival of light. But we think there is also an expectation that India might perhaps be watching Brazil closely, with fears that growth limitations might be too restrictive. India has plans to exceed China’s growth rate over the next few years and so a loose rate policy, or even one which isn’t as restrictive, might be prompting traders to loosen their currency exposure in the immediate term.

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