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Asian Stocks Rebound Amid Dollar Retreat as Trump Shock Fades

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Asian stocks
  • Asian Stocks Rebound Amid Dollar Retreat as Trump Shock Fades

Asian stocks rose for the first time in four days and the dollar weakened versus most peers as investors questioned whether financial markets may have overreacted over the past week to Donald Trump’s shock U.S. election victory.

Energy shares led gains on the MSCI Asia Pacific Index after crude oil jumped on Tuesday by the most in seven months, spurred by OPEC efforts to agree output cuts. Bloomberg’s dollar index extended the last session’s retreat from a nine-month high as a gauge of expected exchange-rate volatility fell for the first time since Trump’s election win. Copper declined for a second day and Japan’s 10-year bond yield stayed at zero, having ended almost eight weeks of negative rates in the last session.

Trump’s victory triggered routs in global bonds and emerging markets, while boosting the dollar and industrial metals on speculation his infrastructure spending plans will spur inflation and prompt the Federal Reserve to speed up the pace of U.S. interest-rate increases. Post-election moves in those assets are being pared after their relative strength indexes swung to extreme levels, an indication that initial price reactions were excessive.

“Things might have got a little bit overdone with the market having got very excited about reflation and what it’s going to mean,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion. “Most of the sharp adjustment is behind us now and from here you’ll need to see tangible evidence of some of those policy moves.”

Volatility in financial markets has died down this week, though U.S. monetary policy is at the forefront of investors’ minds. Fed Governor Daniel Tarullo said Tuesday an interest-rate rise next month is more likely than before and fed funds futures imply a 94 percent probability of an increase. Fed Presidents James Bullard, Neel Kashkari and Patrick Harker are all scheduled to speak Wednesday and may shed more light on the likely trajectory of borrowing costs in the world’s biggest economy.

Stocks

The MSCI Asia Pacific Index added 0.9 percent as of 1:03 p.m. Tokyo time, with a gauge of energy stocks climbing 1.5 percent. Japan’s Topix index rallied to a nine-month high, driven by gains in banking stocks as investors bet earnings at financial companies will benefit from the recent pickup in bond yields. The Topix Banks Index has jumped more than 20 percent in five days, the steepest surge since 2008.

“It’s gradually turning to a bull market,” said Yoshinori Shigemi, a global markets strategist at JPMorgan Asset Management in Tokyo. “There are two factors – one is faster growth in the U.S. economy, and another is a stronger dollar, meaning a weaker yen.”

Tencent Holdings Ltd. gained more than 2 percent in Hong Kong before Asia’s largest Internet company reports earnings.

Philippine stocks rebounded from an eight-month low and Indonesian shares climbed from their lowest level since July.

Futures on the S&P 500 Index added 0.1 percent after the underlying gauge climbed 0.8 percent on Tuesday, when the Dow Jones Industrial Average closed at a record high. Futures on the U.K.’s FTSE 100 Index rose 0.4 percent.

Currencies

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.1 percent. It declined by a similar amount on Tuesday after surging more than 3 percent in the four trading days following the Nov. 8 U.S. election. The won rose 0.3 percent, while the yen and the euro strengthened 0.2 percent.

“We are starting to see the markets settle a bit after what seemed to be a pretty quick and vicious move into oversold territory,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “We are beholden to headline risk and further details that come out from Trump as his new administration is forming. Volatility will still be high and uncertainty will be higher.”

The JPMorgan Global FX Volatility Index dropped from a four-month high on Tuesday.

Commodities

Crude oil declined 0.3 percent to $45.66 a barrel in New York, after jumping 5.8 percent on Tuesday. Members of the Organization of Petroleum Exporting Countries are holding discussions regarding how to share output cuts pledged at a September meeting in Algiers. The group said it would reduce output to a range of between 32.5 million and 33 million barrels a day. The organization pumped 34.02 million barrels a day in October, according to a Bloomberg News survey.

Copper and aluminum declined in London, extending their retreats from one-year highs reached last week, and zinc held near its highest close since 2010. Metals rallied last week on a combination of increased speculative interest in China and optimism Trump’s pledge to spend as much as $1 trillion on infrastructure will boost demand. The 14-day relative strength index for the London Metal Exchange Index climbed as high as 87 last week, well above the 70 threshold that signals to some traders prices may have risen too far, too fast.

“Investors took the opportunity to lock in gains after some big moves over the past week,” Australia & New Zealand Banking Group Ltd. said in a note on Wednesday. “Skepticism grew about the impact that Trump’s infrastructure spending program would have on demand.”

Bonds

The yield on U.S. Treasuries due in a decade was little changed at 2.22 percent, after retreating from its highest level of the year in the last session. It’s still up almost 40 basis points since Trump’s election, having surged amid growing expectations the Fed will boost interest rates next month and beyond.

Trump’s election helped drive a bond-market rout that has pushed Bank of America Corp.’s Global Broad Market Index down 1.5 percent in November, heading for the biggest monthly decline since May 2013. The president-elect has pledged to cut taxes and boost spending on infrastructure.

Japan’s 10-year government bonds were little changed following a four-day slide that lifted their yield to zero from minus 0.075 percent.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Markets

SEC To Ban Unregistered CMOs From Operating By Month End

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The Securities and Exchange Commission (SEC) says it will stop operations of Capital Market Operators (CMOs) that are yet to renew their registration on May 31, 2021.

This was contained in a circular signed by the management of SEC in Abuja on Monday.

On March 23, SEC had informed the general public and CMOs on the reintroduction of the periodic renewal of registration by operators.

The commission noted that the reintroduction of the registration renewal was due to the need to have a reliable data bank of all the CMOs registered and active in the country’s capital market.

“To provide updated information on operators in the Nigerian Capital Market for reference and other official purposes by local and foreign investors, other regulatory agencies and the general public, to increasingly reduce incidences of unethical practices by CMOs such as may affect investors’ confidence and impact negatively on the Nigerian Capital Market and to strengthen supervision and monitoring of CMOs by the Commission,” SEC explained.

According to the circular, the commission said CMOs yet to renew their registration at the expiration of late filing on May 31, would not be eligible to operate in the capital market.

It explained that CMOs were required to have completed the renewal process on or before April 30, however, the commission said late filing for renewal of registration would only be entertained from May 1 to May 31.

SEC also said that asides from barring the CMOs who failed to comply accordingly, their names would be published on its website and national dailies.

It added that names of eligible CMOs would be communicated to the relevant securities exchanges and trade associations.

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Crude Oil

A Threat to Revenue As Nigeria’s Largest Importer of Crude, India slash Imports By $39.5B

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Crude oil

Nigeria’s revenue earning capacity has come under threat following the reduction of importation of crude oil by India.

India, Nigeria’s largest crude oil importer, reduced crude oil imports by $39.5bn in April, compared to the same time the previous year, data from India’s Petroleum Planning & Analysis Cell showed.

According to the Indian High Commission in Nigeria, India’s crude oil imports from Nigeria in 2020 amounted to $10.03bn.

This represented 17 percent of Nigeria’s total crude exports for the year according to the Nigerian National Petroleum Corporation, as quoted by OilPrice.com.

As Nigeria’s largest importer of crude oil, lockdowns in India’s major cities from the COVID-19 surge in April had ripple effects on Nigeria’s oil sales.

The NNPC was prompted to drop the official standard price of its main export streams, Bonny Light, Brass River, Erha, and Qua Iboe, by 61-62 cents per barrel below its April 2021 prices. They traded at $0.9, $0.8, $0.65, $0.97 per barrel respectively, below dated Brent, the international benchmark, as Oilprice.com showed.

India had been buying the not-too-light and not-too-heavy Nigerian crudes that suited its refiners.

Reuters reported that the Indian Oil Corporation’s owned refineries were operating at 95 percent capacity in April, down from 100 percent at the same time the previous month.

An official at the IOC was quoted as saying, “If cases continue to rise and curbs are intensified, we may see cuts in refinery runs and lower demand after a month.” Hundreds of seafarers risked being stuck at sea beyond the expiry of their contracts, a large independent crude ship owner reportedly told Bloomberg.

India reportedly bought more American and Canadian oil at the expense of Africa and the Middle East, reducing purchases from members of the Organisation of the Petroleum Exporting Countries to around 2.86 million barrels per day.

This squeezed the group’s share of imports to 72 percent from around 80 percent previously, as India’s refiners were diversifying purchases to boost margins, according to Reuters.

India also plans to increase local crude oil production and reduce import expenses as its population swells, according to Bloomberg.

A deregulation plan by the Narendra Modi-led government to boost national production to 40 million tonnes of crude oil by 2023/2024, an increase of almost eight million tonnes, had already been initiated.

According to Business Today, an Indian paper, the country currently imports 82 percent of its oil needs, which amounted to $87bn in 2019.

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Energy

Invest Africa and DLA Piper Partner to Support ESG Best Practice in African Renewable Energy Projects

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Invest Africa - Investors King

The global law firm, DLA Piper, has partnered with Invest Africa, the leading trade and investment platform for African markets, to support the development of ESG best practice in African renewable energy projects.

Clear Environmental, Social and Governance (ESG) targets and measurements have become an increasingly important part of fundraising as investors seek to align their portfolios with sustainable growth. For a continent boasting ample natural resources, this presents a significant opportunity for Africa’s green energy sector. However, renewable does not always equal sustainable and developing and articulating ESG metrics can pose a significant challenge to projects as they prepare investment rounds.

The project will assemble experts from the worlds of impact investment, development finance and law. Across a series of online meetings, participants will discuss strategies to improve ESG practices in African renewable projects from both a fundraising and operational perspective.

Amongst those speaking in the inaugural session on Thursday 13th May are Cathy Oxby, Chief Commercial Officer, Africa GreencoDr. Valeria Biurrun-Zaumm, Senior Investment Manager, DEGOrli Arav, Managing Director – Facility For Energy Inclusion (FEI) – Lion’s Head Global PartnersBeatrice Nyabira, Partner, DLA Piper Africa, Kenya (IKM Advocates) and Natasha Luther-Jones, Partner, Global Co-Chair of Energy and Natural Resources, International Co-Head, Sustainability and ESG, DLA Piper.

Veronica Bolton-Smith, COO of Invest Africa said, “Africa is particularly vulnerable to the impact of climate change despite contributing very little to global emissions. As the price of renewables fall, they will form an ever more important part of Africa’s electrification. In this context, it is essential that projects be given the tools to apply best practice in ESG not only from an environmental perspective but also in terms of good governance, fair working conditions and contribution to social inclusion. I look forward to working closely with DLA Piper on this important topic.”

Natasha Luther-Jones, Global Co-Chair Energy and Natural Resources and International Co-Head Sustainability and ESG at DLA Piper also commented, “Climate change is one of the biggest challenges companies, and people, face today and when we look at its reduction – whether that be in how we power our devices, what we eat or how we dress, where we live or how we work – all roads come back to the need to increase the amount of accessible, and affordable, clean energy. However, renewable energy companies are not automatically sustainable as sustainability is a focus on all ESG factors, not just environmental. We know the need for renewable energy is only going to continue to rise, and therefore so will the number and size of renewable energy companies. The additional challenge is to make sure they are truly sustainable organisations and that’s what we’re excited about discussing during the webinar.”

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