Asian stocks were on edge on Wednesday as geopolitical tensions flared after Turkey downed a Russian fighter jet, while crude oil prices extended gains.
Japan’s Nikkei .N225 shed 0.4 percent.
Adding to investor nervousness that followed attacks in Paris earlier this month, Turkey shot down a Russian aircraft near the Syrian border on Tuesday, saying the jet had violated its air space.
It was one of the most serious publicly acknowledged clashes between a NATO member country and Russia for half a century.
“The individual impact on the market from events like the Paris attacks and heightened security in Brussels may be small, but there is also uncertainty that’s worrying investors,” said Masaru Hamasaki, head of market & investment information department at Amundi Japan.
“The stock market does not like uncertainty,” Hamasaki said.
Still, some of the markets in the region managed to hold their own even as the tense backdrop kept buyers at bay. Shanghai shares edged up 0.3 percent .SSEC while Malaysian and Indonesian stocks also posted modest gains.
“The conclusion would be Russia would not want to take this too much further at a time when its economy is seeing some green shoots after the past two years of sanctions,” said Evan Lucas, market strategist at IG in Melbourne, adding that Turkey is Russia’s second-biggest energy customer.
The incident briefly sparked oil supply fears and sent crude prices surging overnight to 2-week highs.
U.S. crude CLc1 absorbed early profit taking on Wednesday and edged up 0.1 percent to $42.92 a barrel.
The rally in crude favoured commodity currencies such as the Australian dollar AUD=D4, which hovered near a 1-month high of $0.7276.
The Canadian dollar fetched C$1.3294 CAD=D4 to the greenback after pulling away from a 2-month low of C$1.3436 struck earlier this week.
The U.S. dollar was lower, hurt in part as the latest flare-up in geopolitical tensions stoked demand for safe-haven Treasuries and drove their yields lower.
The benchmark 10-year U.S. note yield US10YT=RR stood at 2.239 percent after touching a 3-week low of 2.206 percent overnight.
“I was a bit worried yesterday. So far Russia seems to be taking a ‘grown-up’ attitude, which was good but the market may remain a bit anxious,” said Takako Masai, head of market research at Shinsei Bank in Tokyo.
The dollar index against a basket of major currencies .DXY fell to 99.528, retreating from an 8-month peak of 100.000 set on Monday.
Against the yen, the greenback dipped to a 1-1/2 week low of 122.27 JPY= before crawling back to 122.43.
The euro EUR= gained 0.1 percent to $1.0655.
Prices of metals such as zinc, copper and nickel, which had recently plumbed multi-year lows, bounced on the back of the dollar’s retreat. A stronger dollar makes dollar-denominated metals more expensive for buyers. [MET/L]
However, industrial metals are seen remaining under pressure in the long run with an expected Federal Reserve interest rate hike in December likely to underpin the dollar.
Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal
Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.
Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.
While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.
“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.
“Gold remains an yield story and that yield story is very much tied back to the tapering story.”
A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.
“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.
A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.
Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.
Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.
Silver rose 0.9% to $22.61 per ounce.
Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.
Brent Crude Oil Near $80 Per Barrel Amid Supply Constraints
Oil prices rose for a fifth straight day on Monday with Brent heading for $80 amid supply concerns as parts of the world sees demand pick up with the easing of pandemic conditions.
Brent crude was up $1.14 or 1.5% at $79.23 a barrel by 0208 GMT, having risen a third consecutive week through Friday. U.S. Oil added $1.11 or 1.5% to $75.09, its highest since July, after rising for a fifth straight week last week.
“Supply tightness continues to draw on inventories across all regions,” ANZ Research said in a note.
Rising gas prices as also helping drive oil higher as the liquid becomes relatively cheaper for power generation, ANZ analysts said in the note.
Caught short by the demand rebound, members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have had difficulty raising output as under-investment or maintenance delays persist from the pandemic.
China’s first public sale of state oil reserves has barely acted to cap gains as PetroChina and Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels.
India’s oil imports hit a three-month peak in August, rebounding from nearly one-year lows reached in July, as refiners in the second-biggest importer of crude stocked up in anticipation of higher demand.
Oil Holds Near Highest Since 2018 With Global Markets Tightening
Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.
Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.
China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.
Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.
“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.
Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.
At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.
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