Friday 30 September 2016

Asian shares surrender gains as oil prices retreat

Published 23/02/2016 | 07:09

Investor look at an electronic board displaying share prices at a securities exchange house in Shanghai, China.
Investor look at an electronic board displaying share prices at a securities exchange house in Shanghai, China.

Asian shares retreated from a seven-week high on Tuesday as the oil price rally that had boosted global equity markets reversed, while the euro and sterling were hit by uncertainty over Britain's membership of the European Union.

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European stocks are also poised for a bleak start, with financial spreadbetters expecting Britain's FTSE 100 and France's CAC 40 to start the day about 0.6pc lower, and Germany's DAX to open down about 0.5pc.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.2pc, after earlier rising 0.4pc to its highest level since Jan. 8. Japan's Nikkei erased morning gains to close down 0.4pc.

Korea's Kospi, which started the day higher, and Australia's ASX 200 , which opened little changed from Monday's three-week high close, both ended the day with losses.

Chinese stocks, which opened little changed, were last trading down 1.7pc.

Oil markets jumped as much as 7pc on Monday as speculation about falling U.S. shale output fed the notion that crude prices may be bottoming after their 20-month collapse.

But they retreated on Tuesday on concern that any cuts to U.S. production may be countered by rising output from Iran.

U.S. crude futures CLc1 fell 1.9pc, and the international benchmark Brent LCOc1 slid 1.6pc on Tuesday.

Short-covering in oil began last week after Saudi Arabia and fellow OPEC members Qatar and Venezuela agreed with non-OPEC member Russia to freeze output at January's highs.

"The oil market seems to have become firmer recently," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

But while the market seems to like the fact that top producers are starting to take action to rein in supply, it "remains questionable" whether such moves will have a real impact, he said.

Monday's strong oil prices drove the S&P 500 Index up 1.45pc to 1,945.50 overnight, close to this month's high of 1947.20, led by a 2.2pc increase in the energy .SPNY sector.

The volatility index .VIX, which measures implied volatility of stock options and is often seen as a gauge of investor fear, fell below 20pc to the lowest closing level since early January.

Spot iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI jumped sevenpc on Monday to hit its highest level since late October.

Copper CMCU3 also gained 1.6pc to $4,694 a tonne on Monday, near its one month high of $4,720 touched in early February. But it declined 1.3pc to $4,636 on Tuesday.

The strength in resources on Monday helped commodity-linked currencies such as the Australian dollar scale a seven-week high of $0.7248. It pulled back a little and was last at $0.7231 on Tuesday.

The British pound remained vulnerable a day after falling nearly 2pc, its biggest one-day drop in almost six years, on worries Britain may leave the European Union.

The pound hit a seven-year low of $1.4057 on Monday, after London Mayor Boris Johnson, one of the country's most popular ruling party politicians, announced his support for Britain to leave the EU in a June referendum.

The British unit last stood at $1.4113.

The euro also fell to $1.10035 on Monday, its lowest in almost three weeks, on fears "Brexit" could undermine the European project.

The common currency recovered to $1.1033 on Tuesday.

"Fears of Brexit have relegated the GBP to the bottom of the leader board," said Rodrigo Catril, FX strategist at National Australia Bank.

"The euro was also an underperformer against the USD, suggesting the market is expressing some concerns for the euro if the UK chooses to leave the European Union."

As shares retreated, the dollar also gave up its earlier gains against the yen. It slumped 0.4pc to 112.45 yen, after opening at 112.87.

The dollar's index against a basket of six major currencies .DXY =USD hit a three-week high of 97.60 on Monday but slipped back to 97.315.

Reuters

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