Firm Dollar Hits Oil, Gold, Shares; Nikkei Scales New Peak

Oil and gold prices fell on Monday as the dollar strengthened, weighing on Asian shares, but Japanese equities outperformed on the back of the yen’s slide to a fresh 4-1/2-year low against the U.S. currency.

European stock markets are seen narrowly mixed after the pan-European FTSEurofirst 300 index .FTEU3 closed at a five-year high on Friday, with financial spreadbetters predicting London’s FTSE 100 .FTSE, Paris’s CAC-40 .FCHI and Frankfurt’s DAX .GDAXI would open between a 0.2 percent rise and a 0.1 percent drop. .L.EU

U.S. stock futures were down 0.3 percent, pointing to a weak Wall Street open, after the Dow Jones industrial average .DJI and the Standard & Poor’s 500 Index .SPX ended at record highs on Friday. .N

“A strength in the dollar is weighing on commodities across the board,” said Ben Le Brun, analyst at OptionsXpress in Sydney. “For oil, worries of ample supplies is putting pressure. We have unprecedented levels of stockpiles in the United States, with uncertainty surrounding economic growth.”

U.S. crude futures slipped 0.8 percent to $95.23 a barrel and Brent dropped 0.7 percent to $103.16. <O/R>

The dollar’s strong performance also took the shine off gold, which typically serves as an alternative to the U.S. currency. Spot gold fell as much as 1.5 percent to a session low of $1,426.40 an ounce. <GOL/>

Investors were cautious ahead of China’s data. China’s industrial output in April grew 9.3 percent from a year earlier and its fixed-asset investment grew 20.6 percent from a year ago, both slightly below expectations. Retail sales in April rose 12.8 percent from a year earlier, matching forecasts.

The yen slid to a fresh 4-1/2-year low against the dollar of 102.15 yen in Asia on Monday morning, having earlier hit its highest point since January 2010 against the euro at 132.385. The yen last traded at 101.70 against the dollar.

The drop in commodities prices weighed on the Australian dollar, which traded around $0.9987 after hitting an 11-month low of $0.9961 on Friday.

The dollar was also underpinned against the yen after Japan avoided criticism from its peers for pursuing bold reflationary policies which have resulted in a steady decline in the Japanese currency. A weaker yen improves earnings prospects for exporters and underpins the export-reliant Japanese economy.

Group of Seven finance officials agreed on Saturday to redouble efforts to deal with failing banks and gave a green light to Japan’s drive to galvanize its economy.

Having urged Tokyo for years to do something to revive its economy, other world powers are not in a position to complain now that it is doing so. Also, the Federal Reserve and Bank of England have printed money in the way the Bank of Japan is now.

“If international peers criticize the yen’s weakness, investors who are on the nervous side could stop chasing the market higher. Now, such concerns are receding,” said Kenichi Hirano, a strategist at Tachibana Securities.

The Nikkei stock average .N225 scaled a fresh peak since January 2008 of 14,849.01, rising as much as 1.7 percent. .T

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.8 percent. Hong Kong shares .HSI led the decline with a 1 percent drop as Ping An Insurance fell sharply after a three-month ban was imposed on its brokerage unit for helping list a fraudulent Chinese company.

Australian shares .AXJO were down 0.3 percent after closing at a five-year high on Friday, while South Korean shares .KS11 held in a tight range, capped by the yen’s weakness which erodes the competitiveness of Korean exporters.

U.S. labor market data has pointed to a steady recovery trend in the world’s largest economy, boosting the dollar and fuelling speculation that the Federal Reserve could scale back its aggressive monetary stimulus aimed at supporting growth.

Investors were keeping an eye on the U.S. retail sales due later on Monday.

“U.S. retail sales … is always going to be important as it highlights the health of the consumer and the potential to feed into expectations of inflation and also potential job creation,” Chris Weston, chief market strategist at IG markets, said in a note to clients.

U.S. Treasuries extended losses in Asia, with benchmark 10-year yields rising to 1.93 percent from around 1.895 percent on Friday. <US/T>

Japanese government bond prices tumbled, hurt by the Nikkei’s rally and also tracking U.S. bonds lower, with the 10-year JGB yield hitting a three-month high of 0.750 percent and benchmark JGB futures shedding a full point to their lowest in a year. <JP/T>

Elsewhere, removing a potential source of political instability in the Asian region, Pakistan’s Nawaz Sharif, toppled in a 1999 military coup, has made a comeback over the weekend election, eyeing to form a government to implement reforms needed to rescue the fragile economy.

Reuters