Nikkei Surges on Stimulus Hopes; Shanghai Tumbles

Asian markets finished higher with the exception of Chinese shares.

Nikkei Surges on Stimulus Hopes; Shanghai Tumbles

By: Faraz Haleem Published:
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Asian markets finished higher with the exception of Chinese shares

Asian shares traded mixed on Wednesday, with Nikkei leading the gains, while Shanghai took the biggest hit in the region. The region maintained yesterday’s momentum as investors took cues from mixed overnight finish on Wall Street. Oil Prices retreated on bearish outlook.

Crude

Weak oil market fundamentals have continued to weigh down on prices, as a bearish outlook pushed investors to take short position in crude futures. During Asian trading hours, WTI futures dropped 0.21% to $42.83 per barrel, and globally traded Brent was down 0.38% to $44.70, as of 8:51 AM BST. Oil stocks traded mixed despite weak oil prices.

The American Petroleum Institute (API) in its report last night said that crude inventory in the US fell by 827,000 barrels in the week ending July 22, compared to the forecast of 2.6 million barrels. Gasoline stocks dropped by 423,000 at the oil-storage hub at Cushing, Oklahoma.

According to analysts, the less-than-expected inventory decline suggests that demand is falling in the country even when there is still a month left till the summer season, in which consumption tends to rise, ends. Oversupply concerns have kept oil prices low throughout July, weighing down on a five-month rally which pushed prices above $50 per barrel earlier.

Official inventory data in the US is due later today by the Energy Information Administration (EIA). Market participants will be closely watching the stockpile report. Analysts have forecasted decline in crude stockpiles, and some buildup in gasoline inventories.

Any significant increase in crude stockpile will likely support sell-off pressure, which has already weighed down on oil prices. In less than two months, prices tanked 14% on bearish outlook.

Selling pressure gained steam this week, with oil prices hitting a three-month low as glut concerns revived among investors. Traders and hedge funds have reversed their earlier positions and are now taking short position on expectations of further decline in oil prices.

Some analysts have also cut their prices forecast to below $40 for the fourth quarter, citing excess supply and soft demand in market, along with no sign of any breakthrough on production cut.

Following the $26 per barrel level in February, oil prices recovered significantly on the back of several supply disruptions, including the wildfire in Canada, worker strikes in Kuwait, and militant attacks in Nigeria. Most of these factors are no longer hampering oil production, pushing investors to shift their focus to fundamentals, which show growing crude supply globally.

During Asian trading hours, oil traders took to the sidelines and liquidated their early long position, contributing to sell-off pressure on oil prices. Some analysts believe that volatility is likely to continue in near term as producers seem to be busy in a war for market share.

Greenback

Dollar, during Asian trading hours gained momentum as speculators became active, pushing the currency higher. Bloomberg dollar spot index, which gauges greenback against a basket of currency, surged 0.12% to 97.272, as of 4:56 AM EDT.

Overnight, dollar slipped to a two-week low against yen, as the Federal Reserve begun its monetary policy meeting. Despite Fed officials signaling a potential rate hike at least once this year, certain traders seemed unconvinced. Investors have adopted a cautious stance, analysts say.

Central Banks

Members of the Federal Reserve will announce policy decision later today. Market sentiment might be that the Fed would hold interest rates at the current level, but it’s the post-meeting statement investors await. The policy statement will give guidance to investors about the future of economy.

Bank of Japan (BOJ) also meets tomorrow to discuss monetary policy. Ahead of the decision, Prime Minister Shinzo Abe revealed that the total size of the stimulus program will be $268 billion (28 trillion yen).The announcement of the economic revival plan has added to bullish sentiment among investors.

Japan

Japanese stocks retreated as fresh stimulus expectations turned traders bullish. Confident investors sent Nikkei 225 1.72% higher to lead the region, adding 282 points. The index rallied on the back of support from materials and consumer discretionary sector.

Earlier, news surfaced that the BOJ is considering reduction in interest rates, already in the negative territory, in an attempt to support growth in the economy. Another report suggested that the government’s stimulus plan would exceed $268 billion, which added to bullish sentiment among investors.

In the currency market, yen strengthened against dollar as investors rushed to buy the Japanese currency due to talks of the stimulus package. The dollar-yen pair was trading at 105.54 per dollar, as of 7:12 AM EDT, having boosted from yesterday’s level.

Despite a stronger yen, major exporters finished higher, with Toyota Motor Corp shares soaring 2.93%, Honda Motor Co Ltd stock finishing up 2.21%, and Sony Corp surging 2.09%. Generally, a stronger yen is seen as negative for exporters, as it dilutes their foreign earnings when converted into local currency.

Among oil shares, Showa Shell Sekiyu KK and Inpex Corp shares surged 1.08% and 0.60%, respectively. Energy sub-sector finished 0.99% higher despite decline in oil prices.

China

Mainland shares sunk in the middle of trade on reports of possible curbs on wealth management products (WMP). Shanghai stock exchange composite started off strong but tumbled in the afternoon session to close at a six-week low, dragged down by technology and materials sector. The index shed 58 points to finish 1.91% lower, taking the biggest loss in the region. CSI 300, China’s blue-chip index, also slipped 1.57% at the close of trade, shedding 51 points.

Earlier today, Bloomberg reported that China’s banking authority is planning to tighten control on the WMPs market, which is valued at nearly $3.6 trillion. The authority may put a limit on how much WMPs can invest in non-standard assets and equities, the news agency reported. According to analysts, the move will allow the authority to lower the use of debts in financial markets to mitigate risk and also help strengthen monitoring.

In the currency market, People’s Bank of China as a response to overnight decline in dollar boosted yuan fixing to 6.6671 compared to yesterday’s fixing of 6.6778 per dollar, reflecting an appreciation of 107 basis points. Currency experts believe that the authority has been making efforts to stabilize the renminbi before its inclusion in the IMF basket of currencies in October.

On the back of weak oil prices, Sinopec Oilfield Service Corp fell 4.65%, PetroChina Company Limited dropped 1.64%, while China Petroleum & Chemical Corp traded flat. Energy sector finished 1.71% lower.

Australia

Australian stocks continued to swing for the second day before finishing in the green territory. S&P/ASX 200 index reversed early gains and tumbled during trade, finishing flat at 5,539. The index added two points at the close of trade on the back of support from materials and technology sector. Declines in utilities and health sectors weighed down on the index.

Among miners, BHP Billiton Limited surged 3.12%, and Rio Tinto Limited finished 1.89% higher. Among oil shares, Santos Ltd traded flat, while Woodside Petroleum Limited finished up 0.04%, sending energy sector up 0.04% despite weakness in oil prices.

Hong Kong

Hang Seng recorded a volatile session as the index oscillated between gains and losses before finishing up 0.40%. The benchmark added 89 points on the back of rally in technology and industrials sectors. However, declines in utilities sector offset the gains.

Energy sector closed up 0.86% despite weak oil prices. Cnooc Ltd soared by 0.52%, and PetroChina Company Limited shares surged 1.70% at the close of trade.