Shares, oil stum­ble af­ter fly­ing start

Kuwait Times - - BUSINESS -

World shares and oil pulled back and bonds and gold were back in fa­vor yes­ter­day, as a long-range bal­lis­tic mis­sile test by North Korea and July 4 hol­i­days for US mar­kets re­stricted risk ap­petite. Asian shares were pushed lower and South Korea’s won slid to a 16-week low af­ter the North’s mis­sile landed in Ja­panese wa­ters amid claims from Py­ongyang that it could now strike “any­where in the world”. Europe dropped too as the first fall in oil prices in nine days pushed down com­mod­ity stocks and traders also cashed in some of gains made by the STOXX 600 on Mon­day which had been the big­gest in over two months.

Tra­di­tional safety plays fared well. The Ja­panese yen and gold were both higher, as were Euro­pean bonds and Trea­suries, which have been clob­bered by re­cent signs that the era of emer­gency stim­u­lus and ul­tra low in­ter­est rates might be com­ing to an end. Swe­den’s cen­tral bank sounded re­as­sur­ingly cau­tious yes­ter­day even as it hinted at tighter pol­icy go­ing for­ward.

That took the wind out of the Swedish crown that had been the best per­form­ing global cur­rency over the last week. The Aus­tralian dol­lar also took a tum­ble as its cen­tral bank steered clear of rate hike talk at its lat­est meet­ing. Credit Agri­cole FX strate­gist Manuel Oliv­eri said the Swedish Riks­bank’s move showed how wary cen­tral banks re­mained about their cur­ren­cies, while the day’s other main fo­cus was North Korea’s pos­tur­ing. “North Korea is con­tin­u­ing to pro­voke,” he said. Al­though mar­kets were now used to th­ese kind of events he added: “It is a bit more im­por­tant as it came ahead of the G20 meet­ing this week.” Lead­ers from the Group of 20 na­tions are due to dis­cuss steps to rein in Py­ongyang’s weapons pro­grammes when they meet in Ger­many. US Pres­i­dent Don­ald Trump wrote on Twit­ter: “North Korea has just launched an­other mis­sile. Does this guy have any­thing bet­ter to do with his life?” in an ap­par­ent ref­er­ence to North Korean leader Kim Jong Un.

The dol­lar lost 0.2 per­cent on the yen to leave it buy­ing 113.19 yen. It made al­most as much back against the high fly­ing euro how­ever, leav­ing the six cur­rency dol­lar in­dex steady at 96.259. It had seen its big­gest jump since the start of March overnight, as a strongerthan-ex­pected rise in the June In­sti­tute of Sup­ply Man­age­ment (ISM) na­tional fac­tory ac­tiv­ity in­dex also pro­pelled the 10-year Trea­sury yield to its high­est since mid May.

There were in­creas­ing signs that along­side the geopo­lit­i­cal jit­ters, higher global bor­row­ing rates and the dol­lar were start­ing to pres­sure emerg­ing mar­kets af­ter their stel­lar start to the year. MSCI’s wide­ly­tracked emerg­ing eq­uity in­dex saw its sharpest one-day drop in nearly three weeks and most Asian cur­ren­cies were weaker. The won is now down 3 per­cent over the last two weeks, the In­done­sian ru­piah has erased weeks of gains in the last two days and the Philip­pine peso is stuck near multi-year lows.

“The big­ger-pic­ture driver for th­ese move­ments you are see­ing in emerg­ing mar­ket cur­ren­cies at least over the past two weeks, are signs of a more hawk­ish turn from cen­tral banks - in­clud­ing the ECB, Fed and the Bank of Eng­land,” UniCredit EM FX an­a­lyst Ki­ran Kow­shik said. The next ma­jor data point is likely to be Fri­day’s monthly US jobs re­port. China’s cen­tral bank mean­while warned yes­ter­day that its econ­omy still faces “rel­a­tively big” down­ward pres­sure and that parts of its fi­nan­cial sys­tem lacked suf­fi­cient reg­u­la­tion.

MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan ended down 0.6 per­cent. Ja­pan’s Nikkei sur­ren­dered gains to end 0.1 per­cent down, South Korea’s KOSPI closed 0.6 per­cent lower, though Hong Kong was hard­est hit by the re­gional jit­ters as it slumped as much as 2 per­cent at one point. Tokyo, re­act­ing to the North’s mis­sile test, strongly protested what it called Py­ongyang’s clear vi­o­la­tion of UN res­o­lu­tions, and Ja­panese Prime Min­is­ter Shinzo Abe said he would ask the pres­i­dents of China and Rus­sia to play more con­struc­tive roles in ef­forts to stop Py­ongyang’s arms pro­gram. Com­mod­ity mar­kets also saw a shift. Gold was shin­ing at $1,224 an ounce while oil posted its first ses­sion of losses in nine, end­ing their long­est run of gains since Fe­bru­ary 2012, as traders closed po­si­tions ahead of the July 4 US hol­i­day. US crude slipped 0.5 per­cent to $46.90 a bar­rel while global bench­mark Brent dropped to $49.50 as traders cashed in some of gains from a 3.7 per­cent leap — its big­gest one-day gain since De­cem­ber 2016 — on Mon­day.

“We see a re­cov­ery for oil prices in H2 2017 from cur­rent lev­els, with OPEC pro­duc­tion cuts, a slow­down in global sup­ply growth and sea­son­ally firm­ing de­mand driv­ing up prices,” BMI Re­search said, al­though it added that “large-vol­ume sup­ply ad­di­tions will keep price growth flat year-on-year in 2018”. — Reuters

TOKYO: A man walks by an elec­tronic stock board of a se­cu­ri­ties firm. — AP

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