Sense of optimism lifts Asian stocks

Asian markets were mostly up in late afternoon trading. The MSCI Asia Pacific Index rose 0.5% at noon in Tokyo while China’s Shanghai Composite Index jumped 2.2%. 

There is a sense of optimism before the US Fed gives feedback through its minutes release tonight Asian time, following its two-day meeting. 

In regional economic news, Japan’s exports increased less than expected as shipments of electronic parts fell, an indication that slowing growth abroad and a rising yen may weigh on the economy’s recovery. 

The International Monetary Fund also cut its China growth estimates for this year and next and indicated that a stronger Yuan would help to contain inflation and rebalance the economy. Despite this admission, we don’t think China is likely to revalue its currency by a large amount anytime soon. The social cost would be too high as the growth rate moderates slightly from record highs. 

In Australian corporate news, department store operator David Jones’ result was in line with the already downbeat trading updates delivered over the past few months. The business is dealing with a very challenging environment and while sales in the first quarter have not improved, expectations around profitability are unchanged. The result does have several hints of possible upside however. Management says it is working on a strategic plan for the business through 2013-2016 and will update the market in relation to the longer term outlook of its financial services business. 

In commodities, global mining giant Rio Tinto’s warning on commodities could see some more downside in base metal prices over the next few weeks. There is an air of caution among mining companies, particularly single metal exposures without the diversity Rio Tinto and BHP enjoy in bulks. The copper price is now well below the US$4/lb level.