Oil Sinks as Flight to Safety Hits Shares
Tokyo: Oil prices resumed their fall on Wednesday, with Asian shares also pulling back as global growth concerns and political uncertainty in Greece prompted a flight to safety.
Investors could take no comfort from data showing China's annual consumer inflation eased to a five-year low of 1.4 per cent in November, signalling persistent weakness in the world's second-largest economy.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5 per cent, while Japan's Nikkei stock average was down 1.6 per cent.
"Market euphoria over the recent positive news is fading out for now as investors shift to risk-averse from risk-taking," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.
A Japanese government survey released before the market opened showed big Japanese manufacturers grew less optimistic in October-December and see conditions worsening further in the following quarter, suggesting that the economy is slow to recover from a recession.
Brent crude slipped 1.3 per cent to $65.98 a barrel, though it remained above a five-year low of $65.29 touched on Tuesday. US crude futures were down 1.4 per cent at $62.96. Oil prices have been under pressure amid a massive supply glut, after OPEC decided against an output cut.
Adding to pressure on crude prices, the American Petroleum Institute, an industry group, reported a 4.4 million barrel build in crude stockpiles last week when analysts had predicted a drop.
European political woes added to the gloom. Greek shares and sovereign bond markets plunged after the government in Athens brought forward a presidential vote that heightened uncertainty over the country's transition out of its IMF/EU bailout.
World markets have been buffeted in recent months on signs of weakening global growth, with a rout in oil prices in particular triggering a bout of volatility.
"Volatility surged, most equity markets were routed and a number of consensus trades (were) shaken in London/New York," Sean Callow, a currency strategist at Westpac, said in a note. "US interest rates fell on safe-haven demand for Treasuries and the US dollar followed suit."
The yield on benchmark 10-year notes stood at 2.220 percent in Asian trade, flat from its US close on Tuesday.
The dollar was down about 0.2 per cent on the day at 119.51 yen, after shedding more than 2 per cent at one point on Tuesday to trade as low as 117.90 yen. The greenback marked a seven-year high of 121.86 yen on Monday.
The euro was steady on the day at $1.2374, while the dollar index, which tracks the US unit against a basket of six currencies, was flat on the day at 88.702.
Chinese shares stabilized after a sharp selloff on Tuesday dragged down global sentiment. The Shanghai Composite Index was up 0.4 percent, after a rollercoaster session on Tuesday saw it mark a 3-1/2-year high before collapsing to lose more than 5 percent.
China's official bond clearing house also rattled markets by tightening collateral rules. It excluded about 500 billion yuan ($81 billion) worth of corporate bonds from being used for bond repurchase agreements.
On Wall Street overnight, major indexes ended lower, though the S&P 500 was nearly flat.
Copyright: Thomson Reuters 2014