Asia stocks snap back into the red on Korea tensions
Oil rises as inventory overhang erodes and Saudi cuts exports
TOKYO: Asian stocks turned lower on Thursday as investors fretted about the simmering tensions between the United States and North Korea, sending Seoul shares skidding to two-month lows even as the previous day’s rush into safehaven assets appeared to slow.
Spreadbetters expected European stocks to follow suit, forecasting Britain’s FTSE to open down 0.6 per cent and Germany’s DAX and France’s CAC to start a shade lower.
MSCI’s broadest index of AsiaPacific shares outside Japan slipped 1 per cent, snapping a brief foray into positive territory early in the day and extended losses from Wednesday.
Japan’s Nikkei also handed earlier gains to shed 0.1 per cent.
Shanghai fell 1.1 per cent and Hong Kong’s Hang Seng lost 1.6 per cent. South Korea’s KOSPI dropped as much as 1.2 per cent to a two-month low to move further away from record highs set at the end of July.
“Some investors had wanted reasons to unwind their long positions built up in emerging market equities, and they found an opportunity in the latest bout of Korean tensions,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.
“At the moment, it is unclear how the Korean situation will play out and back that is hampering the markets. But as past incidents involving the Korean Peninsula have shown, the impact on financial markets tends to fade away over a span of few days.”
The declines in some Asian bourses, like Japan’s Nikkei, were limited after Wall Street shares closed barely lower overnight, trimming losses, as investors appeared to brush off geopolitical concerns. The flight-to-safety into US Treasuries also abated overnight. The 10-year Treasury note yield initially fell to a six-week low of 2.212 per cent as bond prices rose, but climbed back to 2.248 per cent.
“US equities managed to cut its losses towards yesterday’s close and while the VIX (volatility index) did pop higher, it still remains at an overall low level. Furthermore, the benchmark Treasury yield also climbed away from lows,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.
“These developments suggest that risk aversion caused by geopolitical tensions in North Asia are temporary in nature, as long as it does not involve military conflict.”
Bids into the Japanese yen and Swiss franc, currencies that find demand in times of geopolitical anxiety, also tapered. The dollar was steady at 110.030 yen after going as low as 109.560 overnight, its weakest in eight weeks.
The Swiss currency slipped 0.2 per cent against the dollar to 0.9655 franc after surging more than 1 per cent the previous day.
The euro inched down 0.2 per cent to $1.1737 while the dollar index against a basket of major currencies added 0.1 per cent to 93.662.
Currency markets focused on the US producer price index data due later in the session.
Investors will study the numbers to get a feel for the US inflation trend and any impact the data could have on the Federal Reserve’s monetary policy.
The New Zealand dollar slipped to a near one-month low of $0.7300 after Reserve Bank of New Zealand Governor Graeme Wheeler said he would like to see the local dollar fall and noted the central bank had the capability to intervene.
The RBNZ had held rates at a record low of 1.75 per cent on Thursday and reiterated that policy would stay loose for a considerable time to come. LONDON: Oil prices rose on Thursday, lifted by a sustained decline in inventories and as Saudi Arabia prepared to cut crude supplies to its prized Asian customers.
Crude is down nearly 7 per cent so far this year, suppressed in large part by concern that OPEC and its partners may not be able to force global oil inventories to drop by cutting production.
However, Saudi Arabia said on Tuesday it would cut supplies to most buyers in Asia - the world’s biggest oil-consuming region - by up to 10 per cent in September. Brent crude futures were up 29 cents at $52.99 a barrel by 0855 GMT, while US West Texas Intermediate crude was up 17 cents at $49.73.
In a sign that investors are turning more optimistic about the pace at which oil supply and demand are rebalancing, prices for crude for prompt delivery are trading above those for delivery further in the future.
“This is the march toward the flattening of the curve,” said SEB chief commodity strategist Bjarne Schieldrop.
“The major event now going forward is the Middle East and Asian refineries rushing back into operation and consuming more crude, just as Saudi Arabia says it will cut September deliveries to Asia,” he said.
The physical market is also showing signs of stronger near-term demand, after having suffered from a persistent overhang of unused crude.
Prices for prompt deliveries of North Sea crude oil are at their smallest discount to future prices in nearly two years and a surplus of oil stored on ships is gradually dissipating, having hit two-year highs.
Gold prices were nudged away from recent highs as broader risk aversion receded somewhat. Spot gold was 0.1 per cent lower at $1,276.40 an ounce after having spiked the previous day to a near two-month peak of $1,278.66.