Yen strengthened as crude oil price tumbled 

yen-china-currency
  • Shanghai equities fluctuate while Hang Seng index retreats

  • Crude oil price tumbled into bear market on supply glut concerns

Asian shares retreated and the yen strengthened as crude oil tumbled into a bear market on concern a global supply glut will persist. Shanghai equities were muted after MSCI Inc. added China’s domestic stocks to its emerging-markets index.

Australia’s benchmark stocks index led losses in the region, with the country’s energy shares falling more than 2 percent. The yen strengthened on haven demand as oil slid more than 20 percent from its high for the year. The Shanghai Composite Index swung between gains and losses after the MSCI’s decision, while Hong Kong shares retreated. Gold rose after a five-day selloff.

“The weight from the crude slide is expected to find investors taking some off the table for Asian markets and shifting toward safer assets,” said Jingyi Pan, a Singapore-based market strategist for IG Asia Pte. As for the MSCI’s move, “in the near-term the inclusion could really be seen as symbolic at best, with the implementation due only in 12 months.”

The MSCI decision will add 222 China A-share stocks starting in May 2018. The nation’s $6.8 trillion onshore market is the world’s second largest and accounts for 9 percent of global stock value, but had been rejected for index inclusion three times by MSCI over issues including capital controls and long trading halts.

The index provider delayed its decision on the status of Argentina’s equities, dealing a blow to investors as bearish bets on the Merval benchmark index jumped to a high and Argentine shares in the U.S. plunged. MSCI also will consult on the possible inclusion of Saudi Arabia in the index.

The swoon in oil dragged down energy shares amid concern that unceasing production from U.S. shale fields is overwhelming OPEC efforts to ease a global supply glut. Libya, exempt from the OPEC-led output cuts, is pumping the most in four years while oil stored on tankers reached a 2017 high this month. The weakness in crude and other commodities dents arguments from American central bankers that weak inflation rates will be transitory, even as the economy shows few signs of distress.

Stocks had barreled to fresh highs after a series of geopolitical concerns seems to have faded, though formal negotiations over Britain’s exit from the European Union began somewhat contentiously. Investors are watching developments in Saudi Arabia, after Deputy Crown Prince Mohammed Bin Salman replaced his uncle as crown prince, a shock announcement that puts the 31-year-old leader next in line to the throne of the world’s biggest oil exporter.

Here are some of the key events on investors’ radar:

  • Still to come on the Fed speaker list: Eric Rosengren, Robert Kaplan, Jerome Powell, James Bullard and Loretta Mester.
  • BOJ Governor Haruhiko Kuroda will speak in Tokyo and ECB board member Benoit Coeure speaks in Frankfurt on Wednesday.
  • New Zealand’s central bank is expected to leave its benchmark interest rate at a record low when it meets on Thursday.

Here are the main moves in markets:

Stocks

  • The Shanghai Composite was little changed as of 2:11 p.m. in Tokyo, after falling as much as 0.2 percent and rising as much as 0.5 percent. Hong Kong’s Hang Seng and the Hang Seng China Enterprises Index each fell 0.4 percent.
  • Australia’s S&P/ASX 200 Index slumped 1.3 percent, almost erasing its gains for the year, with BHP Billiton Ltd. and Rio Tinto Ltd. sliding at least 2.7 percent.
  • Japan’s Topix fell 0.2 percent, after climbing for three days to the highest level since August 2015. South Korea’s Kospi dropped 0.5 percent.
  • The MSCI Emerging Markets Index slid 0.4 percent. ADRs for YPF SA, Argentina’s state-run oil producer, slumped 10 percent in after-hours U.S. trading amid disappointment over MSCI’s decision. Grupo Financiero Galicia SA lost 5.8 percent.
  • Contracts on the S&P 500 dropped 0.1 percent. The gauge’s retreat on Tuesday was led by energy stocks and consumer discretionary producers, which slumped 1.3 percent. The Stoxx Europe 600 erased a gain to end 0.7 percent lower.

Commodities

  • West Texas oil declined less than 0.1 percent to $43.49. Futures tumbled more than 2 percent on Tuesday, touching the lowest since August.
  • Gold rebounded 0.3 percent to $1,246.83 an ounce, after falling for five straight days.

Currencies

  • The yen rose 0.2 percent to 111.27 per dollar, after gaining 0.1 percent on Tuesday. It had retreated 0.6 percent the previous session. The Australian dollar lost 0.3 percent, dropping for a third day. The Korean won dropped 0.7 percent to the weakest level since April.
  • The Bloomberg Dollar Spot Index was flat after rising 0.3 percent on Tuesday and 0.4 percent the previous day. The measure touched the lowest level since October last week.
  • The British pound was little changed at $1.2631, after Tuesday’s 0.8 percent drop. Bank of England Governor Mark Carney said he is still worried about the impact of Brexit on the economy.

Bonds

  • The yield on 10-year Treasuries was little changed at 2.16 percent, after falling three basis points on Tuesday.
  • Australian 10-year yields declined two basis points to 2.40 percent.

Source: Bloomberg – Oil Slide Hits Stocks; MSCI China Impact Is Muted: Markets Wrap

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