Asian stocks slip on oil woes

The Pak Banker - - MARKETS/SPORTS -

Most Asian stock mar­kets slipped on Mon­day af­ter three con­sec­u­tive weeks of gains as a re­treat in oil prices made in­vestors cau­tious, but losses were tem­pered by hopes that China may soon cut in­ter­est rates again as pres­sure on the yuan eases.

In line with a cau­tious Asian ses­sion, Euro­pean shares were seen open­ing slightly lower. The wob­bles in the oil mar­ket, a gen­eral down­turn in com­modi­ties and cool­ing growth in China have rat­tled fi­nan­cial mar­kets in re­cent months.

Fears about the out­look for global growth were also in­stru­men­tal in the U.S. Fed­eral Re­serve's move last week in­di­cat­ing a slower path for fu­ture rate in­creases.

MSCI's broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan was down 0.2 per­cent af­ter en­ter­ing pos­i­tive ter­ri­tory for the first time this year on Fri­day. It is up 16 per­cent from Jan­uary's lows. Ja­panese mar­kets were closed for a hol­i­day.

"De­spite the cur­rent rally in risk, we are more in­clined to be broadly bear­ish on emerg­ing mar­kets given the un­der­ly­ing weak­en­ing trend," said Frances Che­ung, head of rates strat­egy, Asia ex-Ja­pan at So­ci­ete Gen­erale in Hong Kong.

Stocks in China and Hong Kong rose, but equity mar­kets else­where in the re­gion edged lower with Tai­wan (.TW11) and Aus­tralia (.AXJO) lead­ing losses.

In the ab­sence of any fresh ma­jor eco­nomic data in a hol­i­day-short­ened week, in­vestors were left to ponder the softer tight­en­ing bias from the Fed even as the U.S. eco­nomic re­cov­ery ap­peared to be gath­er­ing fresh steam. Dol­lar bulls were hit hard last week af­ter the Fed's less hawk­ish stance which cut the pro­jected rate hikes for the rest of the year by half to only two. Fi­nan­cial mar­kets, as seen by money mar­ket fu­tures, are barely pric­ing in one.

Fed Chair Janet Yellen sounded doubt­ful that a re­cent firm­ing in U.S. in­fla­tion would be sus­tained, sug­gest­ing the cen­tral bank is in no hurry to tighten pol­icy. Some mar­ket watch­ers such as Fran­cis Che­ung, China strate­gist at bro­ker­age CLSA, said the Fed's re­newed cau­tion would en­cour­age Bei­jing to pur­sue with its own stim­u­lus mea­sures to boost the econ­omy. He ex­pects an in­ter­est rate cut in the se­cond quar­ter.

"We see this rally con­tin­u­ing un­til the se­cond quar­ter with prop­erty ma­te­ri­als, in­ter­net and in­dus­tri­als sec­tors in de­mand," CLSA's Che­ung said point­ing to rel­a­tively cheap val­u­a­tions. On a trail­ing price-toearn­ings ba­sis, the MSCI Asia ex-Ja­pan is trad­ing at 12.3 times, nearly one stan­dard de­vi­a­tion below its 20-year av­er­age. At 9.3 times, Hong Kong's stock mar­ket (.HSI) was trad­ing com­fort­ably below one stan­dard de­vi­a­tion to its 20-year av­er­age. China's econ­omy is show­ing signs of im­prove­ment while cap­i­tal out­flows from the coun­try are mod­er­at­ing, top Chi­nese of­fi­cials said on Sun­day. Eas­ing out­flows and the softer dol­lar are re­sult­ing in less pres­sure on the yuan cur­rency, which could give the cen­tral bank more con­fi­dence to cut in­ter­est rates and banks' re­serve re­quire­ments again af­ter largely weak data in Jan­uary and Fe­bru­ary, some mar­ket watch­ers say.

How­ever, softer oil prices damp­ened sen­ti­ment. Oil slipped for a se­cond ses­sion, ex­tend­ing Fri­day's slide of over 1 per­cent af­ter the U.S rig count rose for the first time since De­cem­ber, re­new­ing wor­ries of a sup­ply glut af­ter an out­put freeze pro­posal had helped boost the mar­ket to 2016 highs.

US West Texas In­ter­me­di­ate (WTI) fu­tures fell more than 1 per­cent to $38.85 per bar­rel af­ter briefly top­ping $41, its high­est since last De­cem­ber. Brent crude (LCOc1) edged lower to $40.89 per bar­rel af­ter hit­ting this year's peak of $42.54 per bar­rel. Rate mar­kets also cheered the Fed's cau­tious­ness with 10-year and two-year U.S. yields down by 14 and 16 ba­sis points since the U.S. cen­tral bank's meet­ing last week.

Credit mar­kets basked in the afterglow of the re­cent rally with an in­dex of high­yield credit (HYG) ex­tend­ing gains to be up 9 per­cent in roughly a month.

In cur­ren­cies, the dol­lar in­dex (.DXY) was lit­tle changed at 95.17, not far from a five-month trough of 94.578 set on Fri­day. The green­back fetched 111.48 yen (JPY=), still within reach of Fri­day's 17-month low of 110.67. The euro, which last week scaled a one-month peak of $1.1342, stood at $1.12620 (EUR=).

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