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- Asian stock markets wavered on Wednesday after downbeat U.S. manufacturing data raised questions about how aggressive the Federal Reserve would be when hiking interest rates, while the dollar retreated from 8-1/2-month highs. Data on Tuesday showed the U.S. manufacturing sector contracted last month to its weakest level since June 2009, though construction spending rose in October to the highest level since December 2007. While the manufacturing data in itself did not seem to shake expectations that the Fed likely will start raising rates in mid-December, it renewed debate about the pace of further rate increases and the potential impact on global capital flows. A slower tightening cycle would mean that the flood of liquidity the Fed has been providing to global risk asset markets would not subside as quickly. But it could also lead to concerns among Asian exporters about the strength and sustainability of demand in one of their key markets.
- The dollar index, a gauge of the greenback’s strength against a basket of key currencies, pulled back from the 8-1/2-month peak of 100.310 .DXY scaled on Monday, and last stood at 99.896 in the wake of the disappointing manufacturing figures. The dollar was also pressured by comments from Chicago Fed President Charles Evans, who emphasized the need for the U.S. central bank to spell out a gradual pace of rate hikes. The dollar’s retreat provided some respite to the euro, which has been battered recently by prospects of the European Central Bank rolling out more stimulus at its policy meeting on Thursday. The common currency traded above $.10600 EUR=, pulling back from a 7-1/2-month low of $1.0557.
- U.S. manufacturing contracted in November for the first time in three years as the sector buckled under the weight of a strong dollar and deep spending cuts by energy firms, but robust automobile sales suggested the economy remained on solid ground. Other data released on Tuesday showed a sturdy increase in construction spending in October, which should help offset the drag from manufacturing on fourth-quarter economic growth. With manufacturing accounting for only 12 percent of the economy, analysts say it is unlikely the persistent weakness will deter the Federal Reserve from raising interest rates this month. The Institute for Supply Management said its national factory index fell to 48.6 last month, the weakest reading since June 2009 when the recession ended, from 50.1 in October. While a reading below 50 indicates a contraction in manufacturing, the index remains above 43.1, which is associated with a recession. Factory activity has also been undercut by business efforts to reduce an excessive inventory build, which is putting pressure on new orders. The ISM said a gauge of new orders tumbled 4 percentage points to 48.9 last month. Oil dipped on Wednesday as an unexpected rise in U.S. stockpiles worsened oversupply concerns, stemming from expectations that OPEC will keep its output target unchanged at a policy meeting on Friday.
- U.S. crude CLc1 was trading down 20 cents at $41.65 per barrel at 0302 GMT (1002 ET), down more than 10 percent since the start of November. Traders are also closely watching the European Central Bank’s policy review on Thursday, which is expected to result in new stimulus measures. They also ignored a weaker dollar, which retreated from a multi-month high on Wednesday after U.S. manufacturing contracted in November for the first time in three years. A weak dollar tends to push up crude prices as it makes greenback-dominated contracts cheaper for holders of other currencies. A 1.6 million barrels rise in U.S. crude inventories last week to 489.9 million took center stage, especially because it contrasted with analysts’ expectations for a decrease of 471,000 barrels. Oil production already exceeds demand by 0.5-2 million barrels per day. The glut has seen prices tumble by more than 60 percent since June 2014, but OPEC is not expected to budge from its stance of keeping output high to defend market share against producers such as Russia and North America.