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Japan Stocks Fall as Yen Strengthens After Abe Stimulus Package

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Japanese shares fell for a third day as the yen jumped after details of the government’s stimulus package disappointed investors. Glassmakers and banks led declines.

The Topix index retreated 1.8 percent to 1,277.42 as of 10:08 a.m. in Tokyo, with all but one of the 33 industry groups dropping. The Nikkei 225 Stock Average sank 1.4 percent. The yen traded at 101.23 per dollar after gaining 1.5 percent on Tuesday as a 28 trillion yen ($277 billion) spending package failed to ignite optimism Japan can revive its economy.

“A risk-off mood is coming to the forefront,” said Chihiro Ohta, a senior strategist at SMBC Nikko Securities Inc. in Tokyo. “In Japan, where many companies, especially in the auto sector, are easily affected by currency moves, the strength in the yen weighs on the overall profits for listed firms.”

Japan’s cabinet announced 4.6 trillion yen in extra spending for the current fiscal year, as Prime Minister Shinzo Abe seeks to bolster the economy without abandoning targets for improving fiscal health. The package will include 13.5 trillion yen of fiscal measures, including 7.5 trillion yen in new spending starting this year, and 6 trillion yen in low-cost loans.

Electric-appliance makers and banks were the biggest drags on the Topix, while telecommunication and trading houses were the only two industry groups that rose.

  • Casio Computer Co. sank 11 percent after lowering its operating profit forecast by 11 percent to 20 billion yen for the half year through June.
  • Mitsubishi UFJ Financial Group Inc. slumped 3.4 percent, the second-biggest drag on the Topix.
  • Honda Motor Co. rose 4.3 percent after posting operating profit that beat analyst estimates.
  • FamilyMart Co. surged 13 percent after the operators of the Nikkei 225 Stock Average said it will add the convenience store operator to its measure.

The stronger yen has increased speculation that the Bank of Japan will cut negative rates further, damping the prospects for banks’ profits, said SMBC Nikko’s Ohta. The Topix Banks Index has tumbled 33 percent in 2016 after the central bank cut rates earlier this year, leaving Japanese shares among the worst performing developed markets. While the central bank’s latest expansion to its stimulus program — almost doubling exchange-traded-fund purchases — boosted shares on Friday, the measure has fallen every day since.

Futures on the S&P 500 Index lost 0.1 percent. The underlying measure fell 0.6 percent on Tuesday, declining the most in four weeks, as sliding crude prices and lackluster consumer spending data revived anxiety that global growth will falter. Oil traded near $40 a barrel in New York following a drop in U.S. stockpiles.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China

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Crude Oil

Oil prices showed signs of recovery on Thursday after a recent slump to a six-month low, with Brent crude oil appreciating by 1% to $75.06 a barrel while the U.S. West Texas Intermediate crude oil also rose by 1% to $70.05 a barrel.

However, investor concerns persist over sluggish demand in both the United States and China.

The market’s unease was triggered by data indicating that U.S. oil output remains close to record highs despite falling inventories.

U.S. gasoline stocks rose unexpectedly by 5.4 million barrels to 223.6 million barrels, adding to the apprehension.

China, the world’s largest oil importer, also contributed to market jitters as crude oil imports in November dropped by 9% from the previous year.

High inventory levels, weak economic indicators, and reduced orders from independent refiners were cited as factors weakening demand.

Moody’s recent warnings on credit downgrades for Hong Kong, Macau, Chinese state-owned firms, and banks further fueled concerns about China’s economic stability.

Oil prices have experienced a 10% decline since OPEC+ announced voluntary output cuts of 2.2 million barrels per day for the first quarter of the next year.

In response to falling prices, OPEC+ member Algeria stated that it would consider extending or deepening oil supply cuts.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman met to discuss further oil price cooperation, potentially boosting market confidence in the effectiveness of output cuts.

Russia, part of OPEC+, pledged increased transparency regarding fuel refining and exports, addressing concerns about undisclosed fuel shipments.

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Crude Oil

Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts

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Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.

Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.

Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.

Despite this effort to tighten supply, market sentiment remains unresponsive.

“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.

Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.

Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.

Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.

Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.

The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.

Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.

Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.

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Crude Oil

U.S. Crude Production Hits Another Record, Posing Challenges for OPEC

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U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.

The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.

The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.

Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.

This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.

While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.

The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.

Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.

Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.

This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.

In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.

However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.

Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.

While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.

The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.

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