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Asian shares slipped on Monday as worries over Sino-U.S. trade disputes, a possible slowdown in the Chinese economy and higher U.S. borrowing costs tempered optimism despite a rebound in global equities late last week.
Not helping the mood, oil prices jumped and Saudi Arabian shares tumbled on rising diplomatic tensions between Riyadh and the West after Riyadh warned against threats to undermine it over the disappearance of a journalist in Istanbul.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 percent while Shanghai shares were down 0.4 percent in early trade. Japan's Nikkei dropped 1.4 percent, with carmaker shares hitting 13-month lows after Washington said it would seek a provision about currency manipulation in future trade deals with Japan.
MSCI’s broadest gauge of the world’s stock markets was off 0.2 percent after a sizable 3.87 percent decline last week — its biggest since March — to a one-year nadir.
The market shakeout has been blamed on a series of factors, including worries about the impact of a US-China trade war, a spike in US bond yields this week and caution ahead of earnings season.
Although selling appeared to have abated on Friday, partly after Chinese trade data showed strong growth in September, many investors remained cautious.
“Some people say markets drew comfort from China’s exports data. But to me it seems so obvious the numbers were inflated by front-loading ahead of the introduction of tariffs,” said Norihiro Fujito, chief investment analyst at Mitsubishi UFJ Morgan Stanley Securities.
Fujito said the trade war is starting to take a toll on growth in China, noting that data released later on Friday showed Chinese auto sales posted the biggest drop in seven years.
Over the weekend, China central bank governor Yi Gang said he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.
Also starting to attract wider attention, Saudi Arabia doubled down on pressure from the West on the disappearance of Jamal Khashoggi, a US resident and Washington Post columnist, after he entered the Saudi consulate in Istanbul on October 2.
Saudi Arabia’s shares plunged as much as 7 percent on Sunday, and closed down 3.5 percent at their lowest levels since early January. Shares in Dubai, a regional economic hub, slid 1.5 percent to a low last seen in January 2006. Oil prices reversed their downtrend since early this month.
Brent crude price
Brent crude futures rose 1.2 percent to $81.40 per barrel, bouncing back from Friday’s near-three-week low of $79.23. “Oil prices could rise to $100 on worries about Saudi Arabia,” said Kazuhiko Fuji, senior fellow at Research Institute of Economy, Trade and Industry, a think tank affiliated with the Japanese government.
“People had thought the Saudis will make up for fall in Iran’s output. If they are starting to use oil as their weapon, that will be a whole new chapter,” he said. Higher oil prices could boost inflation around the world and spark rises in U.S. borrowing costs, which are also seen hurting weak borrowers, especially those in emerging markets.
Although the U.S. 10-year yield posted its first major fall in about two months last week on stock market rout, the yield rose a tad on Monday to 3.15 percent. Investors were also bracing for a European Union summit meeting from Wednesday.
Oil rose to around $51 a barrel on Wednesday on perceptions that a price slide to 2017 lows prompted by economic worries had been overdone amid an Opec-led effort to tighten supply.
The Gulf Today
October’s production levels will be the reference point for oil output cuts for most Opec and non-Opec producers that agreed on cuts earlier this month, the UAE’s energy minister said on Sunday.
Oil prices fell more than $1 on Tuesday, dropping for a third session as reports of growing inventory and forecasts of record shale output in the United States stoked worries about oversupply.
Oman Daily Observer
A full implementation of the recent output cuts deal reached by Opec could stabilise oil markets in 2019 and reduce the risk of a decline in oil prices in the short term, analysts said.
Saudi Arabia’s energy minister held talks Monday with US Energy Secretary Rick Perry, after the Kingdom and its allies defied US pressure to cut oil production in a bid to prop up prices.