Asia stocks edge up but Saudi tensions limit gains

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TOKYO (Reuters) – Asian stocks rose modestly on Tuesday, gaining a firmer footing after a week of heavy losses, although increasing tensions between Saudi Arabia and the West have fanned geopolitical concerns and capped gains.

People walk past an electronic board showing Japan’s Nikkei average (top R) and Japanese yen’s exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan, October 15, 2018. REUTERS/Toru Hanai

MSCI’s broadest index of Asia-Pacific shares outside Japan nudged up 0.25 percent, crawling away from a 19-month trough touched on Thursday.

Japan’s Nikkei bounced 0.6 percent following a decline of nearly 2 percent the previous day.

The disappearance in Turkey earlier this month of a Saudi journalist critical of Riyadh has provoked an international outcry against the oil-rich kingdom, which has rattled its financial markets.

U.S. President Donald Trump has sent Secretary of State Mike Pompeo to Saudi Arabia over the case, potentially straining the relationship between the strategic allies.

“The focus of the markets has turned to the Middle East due to the Saudi incident. And with U.S. stocks still struggling, other equity markets will have a difficult time bouncing convincingly,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The United States has been the epicenter of the recent market tumult, with Wall Street shares being hit by higher Treasury yields. U.S. shares will have to find their feet first.”

Saudi Arabia’s riyal currency retreated overnight to 3.7525 to the dollar – its weakest in two years.

Wall Street shares were dragged down overnight by a retreat in technology shares amid lingering worries over high U.S. bond yields. [.N]

The Dow has lost 4.5 percent this month, pulled away from record peaks, as long-term Treasury yields soared to their highest level since 2011. Higher yields are seen eroding the allure of equities.

Hong Kong’s Hang Seng added 0.15 percent and the Shanghai Composite Index was last up 0.1 percent.

Data on Tuesday showed China’s factory-gate inflation cooled for a third straight month in September amid ebbing domestic demand, pointing to more pressure on the world’s second biggest economy as it remains locked in an intensifying trade war with the United States.

Perceived safe havens such as the Japanese yen and Swiss franc have found supported following the hit riskier assets have taken.

The dollar traded at 111.95 yen, not far from a one-month low of 111.625 brushed overnight.

Against the dollar, the Swiss currency stood at 0.9882 franc after advancing 0.5 percent the previous day.

The euro was little changed at $1.1574, after rising 0.2 percent the previous day.

Sterling was at $1.3145, having bounced from a one-week low of $1.3080 plumbed on Monday amid a stalemate over the post-Brexit status of Britain’s land border with Ireland.

Currency market focus was on the U.S. Treasury’s semiannual currency report due later in the day, with investors waiting to see Washington’s view on China after media reports last week that the department has not labeled Beijing a currency manipulator.

“It is clear that China does not meet the criteria of currency manipulator based on the current assessment, as the country’s current account surplus as a percent of GDP has fallen below 3 percent,” wrote strategists at OCBC Bank.

China’s yuan was a shade weaker at 6.924 per dollar in onshore trading.

In commodities, tension between the United States, the world’s top oil consumer, and Saudi Arabia, one of the biggest producers, pushed up crude prices on concerns about supply. [O/R]

Brent crude futures rose 0.3 percent to $81.00 a barrel, stretching gains from Monday.

Safe haven gold was at $1,225.51 an ounce, in striking distance of a near three-month high of $1,233.26 scaled on Monday.

Editing by Sam Holmes

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