Oil jump and China data lift emerging markets higher
Energy firms lead Asian equities rally on OPEC deal
LONDON, Dec 1, (RTRS): Emerging market stocks edged higher on Thursday, but currencies struggled for direction after manufacturing data painted a mixed picture for developing economies while the prospect of rising oil prices and a weaker dollar provided some support.
Data from China showed manufacturing in the world’s second- largest economy grew more than expected in November because of government building projects and a housing boom.
Russian manufacturing rose to a fiveyear high and Poland’s expanded faster than expected, but Turkey’s manufacturing, which makes up around a third of the economy, contracted and South Korea saw a fourth straight month of declines.
The mood was still being buoyed, though, by gains of nearly 10 percent in oil prices after OPEC agreed its first cut in oil output since 2008 on Wednesday.
“China’s Purchasing Manager Index coming in stronger than expected is a key one — China has such a huge impact on emerging markets, it affects general risk sentiment, and when things look okay in China that boosts confidence in the rest of emerging markets,” said Per Hammarlund, chief emerging markets strategist at SEB.
“Markets are also feeding off yesterday’s OPEC decision ... when sentiment changes for the positive for oil producers, it tends to lift other emerging markets.”
Russia’s rouble continued to benefit from the gains by oil, adding 0.2 percent to the 2 percent it had jumped on Wednesday. Moscow dollar-denominated stocks climbed 1 percent to their highest in a year and a half.
South Africa’s rand strengthened 0.2 percent, snapping a two-day losing streak, though there was more gloom for Turkey’s lira as it weakened 0.7 percent, retreating towards the record low it reached last Friday.
Brazil’s real also dropped 0.8 percent after its central bank trimmed interest rates by 25 basis points.
“Last night’s 25 basis point rate cut may as well not have happened,” Simon Quijano-Evans, emerging markets strategist at Legal & General wrote in a note. “The economy clearly needs way more to support the downside trend with consensus now looking for only 1 percent GDP next year, and even that looks very shaky.”
Across emerging Europe, currencies eased against the euro despite PMI data showing Czech, Hungarian and Polish manufacturing picking up pace again after slowing in the third quarter. They are expected to outstrip growth in the neighbouring 19-country euro zone.
Meanwhile, energy shares led a rally across Asian markets Thursday and oil built on the previous day’s near 10 percent surge after OPEC hammered out a last-minute deal to cut oil output for the first time in eight years.
Adding to the buying sentiment was a better-than expected reading on Chinese factory output that provided fresh hope the world’s number two economy was stabilising after years of slowing growth.
The OPEC exporters’ group, meeting in Vienna, said its 14 members had agreed on specific targets that will reduce production by 1.2 million barrels a day from next month, while key non-member Russia also committed to a reduction.
Volatility
Both main contracts surged on the announcement, which ended weeks of uncertainty and volatility on crude markets as the key players bickered over who would shoulder the biggest burden of the cuts, leading to worries a deal would not be reached.
Brent and West Texas Intermediate both climbed more than one percent to sit above $50 in Asian trade, pushing regional investors back into energy firms on hopes the higher prices would boost revenues.
“The words ‘OPEC’ and ‘exceed expectations’ have rarely, if ever, been used in the same sentence. However yesterday’s production deal seems to have done just that,” Jeffrey Halley, senior market analyst at OANDA, said in a note.
“Cuts have been shared across all members, including the recalcitrant Iran and Iraq.”
Still, the deal lit a fire under energy firms. Tokyo-listed Inpex was the big gainer, piling on 10 percent, while Woodside Petroleum soared more than six percent. CNOOC ploughed 6.1 percent higher in Hong Kong and Petrochina almost five percent.
Among stock markets, Japan’s Nikkei ended up 1.1 percent at its highest close this year, while Hong Kong added 0.4 percent and Shanghai closed up 0.7 percent.
Sydney gained 1.1 percent, Seoul was flat and Manila added 1.2 percent. There were also healthy advances in Singapore, Jakarta, Taipei and Wellington.
In early European trade, London was flat, while Frankfurt fell 0.4 percent and Paris shed 0.2 percent.
The removal of uncertainty provided fresh support to the dollar, which rallied towards 115 yen, its highest mark since February, before easing back slightly. And gold suffered a sell-off, sinking 1.7 percent to $1,167 as investors walked away from safe-haven assets that are popular in times of uncertainty.
In China, official figures showed a gauge of manufacturing activity had hit its highest level since mid-2014, although analysts pointed out the reading was a mixed blessing.
“Underlying data shows that this is pretty clearly heavy-industry driven, with help from credit and little contribution from consumption,” Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen, told Bloomberg News.
“While this may prop up growth in the short term, it is clearly not rebalancing or deleveraging.”
And Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group in Hong Kong, warned: “With this growth momentum, the (central bank) doesn’t need to ease.”
Focus now turns to the release Friday of US jobs data. With dealers certain the Federal Reserve will hike interest rates this month, the figures could provide some insight into its plans for future increases over the next year.
Meanwhile, oil prices resumed their rise Thursday and held above the $50 barrier following OPEC’s decision to carry out its first output cut in eight years.