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- Asian share markets bounced on Monday after Wall Street welcomed an upbeat U.S. jobs report that suggested the world’s biggest economy was well placed to handle an expected first increase in interest rates in almost a decade. Oil prices were near their lowest since 2009 in the wake of the Organization of the Petroleum Exporting Countries’ decision to keep production high despite depressed demand. Equity investors in Asia were also wary ahead of a bevy of Chinese data which are expected to show a still sluggish economy. Trade figures are due on Tuesday, followed by inflation on Wednesday and industrial output and retail sales on Saturday. Japan’s Nikkei .N225 led the way with a 1.2 percent gain, while Australian stocks managed only 0.1 percent. The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen started soft before inching up 0.2 percent. On Wall Street, the Dow .DJI had rallied 2.12 percent on Friday, while the S&P 500 .SPX gained 2.05 percent and the Nasdaq .IXIC 2.08 percent.
- Currency markets were still reeling from last week’s savage rally in the euro which saw its biggest one-day rise in more than six years. So swift was the move that dealers suspect many investors were unable to exit their short positions and were now hoping desperately for a pullback to sell into. Yet that in turn gave other speculators reason to keep the euro from falling, perhaps why the single currency suffered only limited losses on the U.S. jobs report. The gains followed a U.S. payrolls report that showed employers hired 211,000 people in November while even greater numbers joined the workforce. All but one of the primary dealers polled by Reuters expect the Federal Reserve will hike next week, while futures markets imply around an 80 percent probability. Yet extreme market positioning and a lack of liquidity led to some counterintuitive moves, with the dollar ending the week lower while Treasury yields actually fell.
- Bank of Japan board member Takehiro Sato said on Monday the impact of its quantitative easing is likely diminishing, as long-term interest rates have not declined much since the central bank increased debt purchases in October 2014. Sato said the BOJ cannot buy government debt indefinitely at its current pace because eventually some financial institutions will not want sell off their JGB holdings, according to the text of a speech he gave in Nara, western Japan. Last week, BOJ board member Takahide Kiuchi made similar comments questioning the impact of the central bank’s government debt and asset purchases for quantitative easing. He said real interest rates have stopped falling.
- Crude oil prices in Asia on Monday fell sharply with continued oversupply and weak demand seen in place as major producers declined to cut output. Last week, oil prices fell sharply on Friday, as market players reacted to OPEC’s decision to leave its production ceiling unchanged at a contentious meeting in Vienna. As a result, crude prices are expected to remain stubbornly low amid a glut of oversupply on global energy markets. The Organization of the Petroleum Exporting Countries decided to maintain current production levels at around 31.5 million barrels per day after the divided group was unable to agree on a strategy to curb the continuing oversupply on global energy markets. In a statement following the conclusion of the meeting, OPEC said that it would “continue to closely monitor developments in the coming months”. The oil cartel’s next meeting is scheduled for June. Global crude production is outpacing demand following a boom in U.S. shale oil and after a decision by OPEC last year not to cut production in order to defend market share. Market players shrugged off a report from industry research group Baker Hughes (N:N:BHI) late Friday, which showed that the number of rigs drilling for oil in the U.S. decreased by 10 last week to 545. A lower U.S. rig count is usually a bullish sign for oil as it signals potentially lower production in the future. The U.S. Energy Information Administration said that crude oil inventories rose by 1.2 million barrels last week, the 10th straight weekly gain. Total U.S. crude oil inventories stood at 489.4 million barrels, remaining near levels not seen for this time of year in at least the last 80 years. The oil market has been on the defensive in recent months amid uncertainty about how quickly the global glut of crude is set to shrink. Markets will also be watching a raft of Chinese economic data this week, including a report on the trade balance as well as data on consumer price inflation.