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Market Update: Asian Shares Slip on Trade Worries, Oil Gives up Some Gains

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Asian equities
  • Asian Shares Slip on Trade Worries, Oil Gives up Some Gains

Asian shares fell on Monday on escalating trade tensions between the United States and major economies while oil prices gave up some of their hefty gains made after major oil producers agreed to a modest increase in production.

S&P500 mini futures eased as much as 0.6 percent in early trade while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.25 percent. Japan’s Nikkei lost 0.4 percent.

The falls were triggered by a report from the Wall Street Journal that U.S. President Donald Trump plans to bar many Chinese companies from investing in U.S. technology firms and block additional technology exports to China.

“Until last week, there was vague optimism that we can muddle through this. But now it looks like, unless the U.S. lays down its arms, things will be getting more chaotic,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

As the threat of a full-blown trade war has become all the more real, MSCI’s gauge of stocks across the globe has fallen in five of the last six weeks, including last week, when it declined one percent – its biggest weekly drop in three months.

Chinese shares were among the biggest losers, tumbling 3.7 percent last week, as Trump put the heat on Beijing, threatening to hit $200 billion of Chinese imports with 10 percent tariffs.

Policy makers in China moved fast to temper any potential economic drag from the trade dispute with the United States, with China’s central bank on Sunday saying it would cut the amount of cash that some banks must hold as reserves by 50 basis points (bps).

The reduction in reserves, the third by the central bank this year, had been widely anticipated by investors and is aimed to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms.

Following the move, the CSI300 Index of mainland Chinese shares rose 0.1 percent in early trade.

On the other hand, the index of global auto manufacturers , which shed 4.7 percent last week, remained soft.

Trump threatened to impose a 20 percent tariff on Friday on all imports of EU-assembled cars, a month after his administration launched an investigation into whether auto imports posed a national security threat.

A senior European Commission official said on Saturday that the European Union will respond to any U.S. move to raise tariffs on cars made in the bloc.

Investors and traders are worried that threats of higher U.S. tariffs and retaliatory measures by others could derail a rare period of synchronised global growth.

Oil prices were supported after OPEC and non-OPEC producers agreed on a modest increase in production from next month, without announcing a clear target for the output increase, leaving traders guessing how much more will actually be pumped.

OPEC and non-OPEC said in their statement that they would raise supply by returning to 100 percent compliance with previously agreed output cuts, after months of underproduction.

“In reality, there aren’t many countries that can raise outputs, with only Saudi Arabia having the capacity to flexibly increase the output. But if Saudis alone increase outputs sharply, they could face backlash from some other countries,” said Tatsufumi Okoshi, senior commodity economist at Nomura Securities.

“So markets seem to be sceptical how much Saudi can increase. We could see some profit-taking after last week’s gains but the market will be supported. The next focus will be on the size of output increase by Saudis in July,” he added.

U.S. crude futures traded at $68.36 per barrel, down 0.3 percent for the day after Friday’s 4.6 percent rally.

International benchmark Brent fell 2.0 percent, however, to $74.08 per barrel, giving up more than a half of their gains made on Friday.

In the currency market, the euro held firm at $1.1656 , bouncing back after hitting an 11-month low of $1.1508 on Thursday.

The euro climbed on Friday as traders were encouraged by improved regional economic growth data and new assurances by Italian politicians that their nation would not leave the single currency.

Business activity in Germany and France, the euro zone’s top two economies, picked up in June despite trade tensions between Europe and the United States, IHS Markit data showed.

The dollar fell 0.4 percent to 109.50 yen, hitting its lowest levels in two weeks as the yen firmed on concerns about global trade frictions.

The Turkish lira gained by up to 1.6 percent on expectations of a stable government after Tayyip Erdogan and his ruling AK Party claimed victory in Turkey’s presidential and parliamentary polls on Sunday.

But his victory kept alive worries about inflation and the central bank’s independence given Erdogan’s recent comments suggesting he wants to take greater control of monetary policy.

The lira last traded at 4.6500 to the dollar, up 0.5 percent from 4.6625 at the end of last week, but off the day’s high hit earlier of 4.5870.

Bitcoin steadied after hitting seven-month lows during the weekend as the security of cryptocurrency exchange operators came under more scrutiny.

The digital money fell to as low as $5,780 and last stood at $6,155.

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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Markets

A Wild 24 Hours

Stock markets aren’t faring too badly on Thursday, which is arguably surprising considering how eventful the last 24 hours have been.

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Traders Wall Street

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Stock markets aren’t faring too badly on Thursday, which is arguably surprising considering how eventful the last 24 hours have been.

It’s hard to know where to start on a day like today. While the Fed’s hawkish rate hike is probably the dominant driver in the broader markets, the dangerous nuclear threats from the Kremlin are causing quite a stir and then there’s the small matter of Japan’s first FX intervention in 24 years which has triggered some huge moves in the yen.

Fed resists the urge

The Fed’s decision to hike by 75 basis points, despite the obvious temptation to opt for a full percentage point, was probably sensible given the scale of tightening we’ve already seen this year. It now expects to go further with rates, with markets pricing in another 125 basis points this year and 25 next, although as we’ve seen throughout the year, that will probably change as we get more data. In much the same way that investors got too excited by the July inflation data, it may prove to be the case that the August setback isn’t as bad as feared. In such uncertain times, overreaction is becoming the norm.

Japan finally intervenes as BoJ stands firm

The Bank of Japan is standing firm on its policy stance, despite the widening differential with the US and others. That has put considerable pressure on the currency this year, so much so that the Ministry of Finance completed its first intervention in 24 years as the yen neared 146 against the dollar. The move on the back of that was quite something and it may not be the last. Interestingly, the level the pair reached was only a little shy of that in 1998 when it last intervened, prompting further speculation about whether this is the unofficial line in the sand. That has been denied but the rate check also occurred around 145 so perhaps there is more to it than just volatility. It will be interesting to see how keen traders are to put that to the test in future.

BoE continues with conservative approach

The Bank of England raised rates by 50 basis points today; a move some may view as a little conservative under the circumstances. Of course, that’s an accusation that’s been levelled against the MPC a lot this year as it proceeded with 25 basis point hikes while others were accelerating them. But without the benefit of new economic projections and details of tomorrow’s mini-budget, the decision is that much harder as was evident from the vote split. Perhaps the BoE will regret passing up another opportunity to ramp up the pace of tightening, with inflation now seen peaking just below 11% in October and remaining in double-digits for a few months after. But with the economy potentially already in recession, the Bank – like many others – finds itself between a rock and a hard place.

CBRT keeps cutting despite soaring inflation

One central bank that isn’t concerned about the consequences of its actions is the CBRT. It cut rates by another 100 basis points today despite inflation sitting above 80% which sent the lira to a new record low against the dollar. You have to wonder what it will take for the central bank to accept that its experiment – at the worst possible time – has failed but clearly, we’re not nearly at that point. More pain to come, it seems.

Franc slides as SNB hikes by 75 basis points

The Swiss National Bank hiked rates by 75 basis points today which was at the lower end of expectations. The franc tumbled in the aftermath of the decision, slipping more than 1.5% against the dollar, euro and pound. That’s despite Chair Thomas Jordan hinting at more to come including potentially at an unscheduled meeting, should conditions warrant such action. He also suggested that FX interventions could take place as necessary – which is obviously a hot topic today – while also stressing that the stronger franc has actually aided the fight against inflation.

Oil rises amid more nuclear threats

Oil prices are rising again on Thursday after giving up initial gains a day earlier. Nuclear threats are increasingly becoming the norm from the Kremlin but energy prices remain very sensitive to them. Still, crude isn’t trading too far from the six-month lows and another round of aggressive tightening around the world today won’t be helping, as economic fears continue to weigh on demand prospects. A move below those lows – around $86-88 in Brent – could signal much gloomier economic forecasts and frustrate OPEC+ which has stated it could announce further output cuts, even before the next scheduled meeting.

Choppy trading in gold as the dollar pares gains

Gold has been quite choppy since breaking below $1,680 last week. It has fluctuated largely between here and $1,650 since then and even briefly moved above in the aftermath of the Fed decision. Even today, it slipped back towards the lower end of that range but has since recovered back to the upper end as the dollar has erased gains. Perhaps that’s a sign of a floor appearing, with the market now having priced in a large amount of tightening. I’m not convinced at this stage as the break of $1,680 appeared very significant but time will tell. A pull back in the dollar could certainly facilitate such a recovery in gold.

Bitcoin seeing strong support

Bitcoin is managing small gains after slipping earlier in the day. Once more, it slipped back towards $18,000 where it ran into some support. With the summer lows around $17,500 just a little below again, this is a huge test for bitcoin and cryptos overall. If risk appetite doesn’t improve, that support is at risk of breaking, with further support then potentially appearing around $16,000.

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Energy

D.Light Launches Solar Products in Nigeria to Transform Lives of Low-Income Individuals

D.Light has officially launched into the Nigerian market to transform the lives of low-income individuals

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Renewable Energy - Investors King

D.Light, a pioneering manufacturer and provider of Solar products has officially launched into the Nigerian market to transform the lives of low-income individuals.

This expansion into Nigeria is coming after the company secured a $50 million investment some months ago to better focus on the renewable energy space and support its expansion in Africa.

Speaking at the launch, Co-founder and President Sam Goldman said “The reality is that we are still so far from where we need to be in terms of our population and their needs.

“Hence our target market is the low-income individuals; not just the rural communities which is why the company adopts the ‘pay-as-you-go” model. Access to sustainable energy will not be possible unless we solve the funding problem.

Also speaking about D.light’s mission in Nigeria and across the globe, the chairman of the board, Mrs. Ibukun Awosika stated that the company seeks to transform the lives of a lot of people on earth, as well as bridge the gap to ensure inclusiveness for everyone.

Her words, “Our vision is to change the lives of billions of people on the face of the earth who are crying for equity to have a chance to live a better life.

“We are in Nigeria to transform Africa one community at a time, and this is our driving force she said”.

The co-founder and CEO, Ned Tozun explained that d.light has employed over 6,000 people across Africa.,

He said, “Our target is lower-income individuals. There is a sun in the village and the cities, so when we just say a rural market, it is not.

“The guy who lives in Lagos, but doesn’t have a generator shouldn’t even use a generator if he can have a solar solution. Why? Because of environmental sustainability.

“So, when you think about all the ESG matters, you will encourage more people to use alternate sources of energy rather than polluting sources of energy and that helps everywhere; whether you are in the city or the village. It is about lower income.

“What we’ve done is to think of the entire problem chain. Firstly, innovate the product. Two, how do you deliver it? Deliver it to them at the most reasonable price. Thirdly, make sure it’s affordable for them”.

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Crude Oil

Crude Oil Pulls Back to $91 a Barrel on Monday

Despite the strong U.S. dollar and slowing demand for crude oil, the price of the commodity pulled back on Monday during the New York trading session.

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Crude oil - Investors King

Despite the strong U.S. dollar and slowing demand for crude oil, the price of the commodity pulled back on Monday during the New York trading session.

Brent crude oil, against which Nigerian oil is priced, pulled back from $88 a barrel to $91.52 at 5:31 pm Nigerian time. While the U.S. West Texas Intermediate oil pared losses to $84.75 a barrel, up from $81.65 it traded in the early hours of the day.

The price of the commodity traded lower in the early hours of the day on concerns that central banks will raise interest rates to curb inflationary pressures, a move expected to further hurt demand for crude oil and support the U.S. Dollar’s attractiveness to foreign investors.

“Ideas that continued rate increases will slow world crude demand and keep upward pressure on the U.S. Dollar is triggering long liquidation in both crude and natural gas this morning,” said Dennis Kissler, senior vice president of trading at BOK Financial.

While the pullback may not last given a series of factors impacting the outlook of the commodity, supply remained tight and will continue to dictate prices for the remaining part of the year, especially with the Organization of Petroleum Exporting Countries and allies led by Russia, known as OPEC+ still struggling to up production.

The cartel fell short in August, missing its target by 3.583 million barrels per day (mbpd) following a 2.892 mbpd missed in July.

“The market still has the start of European sanctions on Russian oil hanging over it. As supply is disrupted in early December, the market is unlikely to see any quick response from U.S. producers,” ANZ analysts said.

However, the gradual easing of COVID-19 restrictions in China, the largest importer of the commodity, may help bolster prices.

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