September 2012 markets: QE3 lifted Asia, Europe paused after a 15-month high

This article is a rewrite of a report from September 2012.

(Note: this is a non-MPF market brief; the rewrite preserves the original’s market-watch character.)

Why did Asia’s rally lose steam?

Asian equities rose, but gains were clearly weaker than the previous Friday’s. Sentiment still benefited from the US quantitative easing announced over the weekend, yet profit-taking set in after the rally; with the ECB and the Fed both acting aggressively, the odds of near-term Asian easing also fell.

In detail: Korean department-store sales disappointed, down 6.9% year-on-year in August; mainland Chinese stocks fell all day to close at the lows — the Fed’s third QE round on Thursday plus weekend anti-Japan protests and tensions fuelled worries Beijing would delay easing.

India outperformed: the prime minister approved foreign retailers holding 51% of local supermarket chains and raised foreign airlines’ permitted stakes in local carriers. Despite slowing growth and sticky inflation, the central bank held its benchmark rate at 8% while cutting the reserve ratio from 4.75% to 4.50% to improve liquidity, and the government accelerated reforms over the preceding days.

Why did European markets take a breather?

European equities paused after rallying to a 15-month high on the Fed’s QE3 decision. Concerns over a Chinese slowdown also dampened appetite for European stocks.

Attention turned to Germany’s ZEW economic sentiment indicator, expected to improve from -25.5 in August to -20 in September. The ZEW surveys around 300 German analysts and institutional investors, so it tends to track shifts in financial-market risk appetite. With the world’s two major central banks announcing asset-purchase programmes in September, confidence was expected to improve — possibly more sharply than consensus expected.