Asia bourses lower while awaiting Clinton versus Trump debate, OPEC meeting

Asian stock markets were lower Monday, with sentiment this week likely to be dominated by the first U.S. presidential debate, as well as an upcoming informal meeting of OPEC producers.

In Australia, the ASX 200 finished flat at 5,431.40, with the heavily-weighted financial sector lower by 0.13 percent. The energy sector finished down 0.07 percent, while the materials sector gained 0.26 percent.

Major banking stocks in the country mostly edged higher, with ANZ up 0.04 percent, Commonwealth Bank of Australia flat, Westpac shares up 0.10 percent and the National Australia Bank adding 0.14 percent.

In South Korea, the Kospi closed down 6.96 points, or 0.34 percent, at 2,047.11. In Hong Kong, the Hang Seng index was down 1.42 percent in late-afternoon trade. Chinese mainland markets closed lower, with the Shanghai composite down 52.64 points, or 1.74 percent, at 2,981.24, while the Shenzhen composite shed 41.51 points, or 2.06 percent, to 1,966.60.

Japan’s Nikkei 225 lost 209.46 points, or 1.25 percent, to 16,544.56, after a speech from Bank of Japan (BOJ) Governor, Haruhiko Kuroda, sent the yen higher.

Speaking to business leaders in Osaka, Kuroda said the central bank was prepared to use every policy tool available to achieve its 2 percent inflation target.

He reaffirmed the main policy tool at the BOJ’s disposal for further easing was to cut the short-term policy interest rate further into negative territory and lowering the target level of the long-term interest rate. He added expanding asset purchases also remained an option.

“There is no better opportunity than now to completely get out of deflation,” said Kuroda.

The comments from Kuroda sent the Japanese yen slightly higher against the dollar, trading at 100.85 as of 2:15 p.m. HK/SIN, compared with levels as high as 101.10 earlier in the session.

Last week, the yen fell beyond the 102.40 handle, after the BOJ overhauled its monetary policy, but stopped short of cutting short-term interest rates deeper into negative territory.

Major Japanese exporters ended mostly lower, with Toyota shares down 0.55 percent, Nissan off 1.26 percent and Honda dropping 2.14 percent. A stronger yen is usually a negative for exporters as it reduces their overseas profits when converted into the local currency.

Japanese banking stocks also sold off, likely on the back of Kuroda’s confirmation that further interest rate cuts were still on the table; negative interest rates can hurt banks’ profit margins.

Shares of Mitsubishi UFJ fell 2.06 percent, SMFG was down 1.41 percent and Mizuho Financial dropped 1.26 percent.

Analysts said Asian investors were keeping an eye on the upcoming U.S. presidential debate, where nominees Hillary Clinton and Donald Trump were set to go head-to-head on Monday evening U.S. time. Recent polls have shown the two candidates are neck and neck in their popularity ahead of the November election.

“A ‘good’ performance by Trump could see a rally in safe haven assets, Japanese government bonds/yen, gold, German bunds, and that further yield compression conversely may actually assist long duration ‘riskier’ assets such as emerging markets, high yield bonds and U.S. equities,” Angus Nicholson, a market analyst at brokerage firm IG, forecast in a morning note to clients.

But others said the debate could fall short of expectations.

“We lived through last week with the Fed and the BOJ delivering very little, with a lot of expectations. That could well be what happens with this debate,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, told CNBC’s “Squawk Box” on Monday.

“Given that there is a series of debates, they will try to play it safe in the first one rather than to really [have a] go at each other,” he added.

In the currency market, the dollar index, which measures the greenback against a basket of currencies, traded at 95.478 as of 2:22 p.m. HK/SIN. This was compared to levels above 96.00 briefly touched in the previous week before the U.S. Federal Reserve opted to keep its monetary policy unchanged.

The Australian dollar traded at $0.7616, retreating from levels near $0.7680 in the previous week.

Elsewhere, the Philippine peso weakened against the dollar to levels not seen since 2009, trading at 48.19 as of 2:24 p.m. HK/SIN. Reuters reported that local importers’ demand for the greenback for payments had exacerbated pressure on the peso as foreign investors were also pulling funds out of the country’s stock market amid concerns President Rodrigo Duterte’s aggressive rhetoric and drug crackdown was alienating key allies.

In the oil market, prices climbed on Monday, with U.S. crude up 0.83 percent to $44.85 in the afternoon during Asian hours, after falling 3.97 percent on Friday. Global benchmark Brent added 0.89 percent to $46.30 a barrel.

OPEC producers were set to informally meet this week at the sidelines of an energy conference in Algeria to discuss a possible production freeze deal. Prices received a boost on Monday, following a Reuters report that cited the Algerian energy minister saying all options were possible for an output cut or freeze at the meeting.

But analysts remained skeptical.

“While expectations have painted the group into a corner not to walk away empty-handed, markets have sufficient cynicism not to expect a concrete deal,” said Wei Liang Chang, a currency strategist at Mizuho Bank.

Chang noted that even if a production freeze deal were achieved, it would likely not be immediate.

“Such a deal may target a six-month horizon, rather than taking immediate effect … in line with the likes of Iran, Iraq, Nigeria and Libya stabilizing/smoothing their production,” he said.

On Friday, oil prices gyrated after multiple, contradictory reports created uncertainty. Initially, Reuters reported that Saudi Arabia had agreed to trim its production if Iran capped its own output. That sent oil climbing, but prices pulled back following another report, citing an unnamed Saudi official, warning against the expectation for a deal.

In company news, Samsung shares reversed early gains of nearly 0.3 percent to trade lower by 0.19 percent, following reports that the company was delaying the start of new Galaxy Note 7 handset sales in South Korea until October 1.

Reuters reported the company saying the move was needed for speedy completion of the ongoing recall in the country of existing Note 7 smart phones, with only about 200,000 affected customers having turned in their devices.

The new handset, released earlier this year, had come under scrutiny, following multiple reports of fires and damage to the handsets around the world. Earlier this month, Samsung announced a recall of at least 2.5 million Note 7 handsets in 10 markets to replace a faulty battery causing the phones to catch fire, reported Reuters.

Japanese camera maker Nikon beat the broader benchmark to close up 1.93 percent, after Citigroup upgraded the stock to a Buy from Neutral citing improving technology, change in strategic direction and expectations that the company could avoid a big drop in earnings in fiscal 2018.

Source: CNBC & Reuters

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