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- Asian stocks were down across the board on Wednesday as crumbling oil prices and data pointing to cooling demand from China sapped investor appetite for risk assets. Indicators this week highlighted the continuing struggle facing China’s economy. Soft trade numbers from China on Tuesday cemented concerns over cooling demand. Data on Wednesday showed Chinese factories were plagued by persistent producer price deflation in another sign that Beijing’s year-long easing efforts have yet to restore momentum to a fragile economy. On the other hand, China’s consumer inflation did pick up slightly in November.
- OPEC’s decision on Friday not to cut its production target has sparked concerns global oil producers will pump even more crude into an already oversupplied market. Crude did get some temporary respite from Japan’s robust machinery orders data, and Brent futures were last up 1.2 percent at $40.74 a barrel after falling to $39.81 overnight, lowest since February 2009. Showing the plight of the broader commodity markets, The Thomson Reuters Core Commodity CRB index .TRJCRB on Tuesday hit its lowest since November 2002. In addition to prospects of weaker demand from top consumer China, lower oil prices have hit countries that depend on revenues from oil and other resources. MSCI’s gauge of emerging market shares .MSCIEF fell to two-month lows.
- The dollar remained moderately lower against the other major currencies on Tuesday, but it remained supported by growing expectations for a rate hike by the Federal Reserve next week. U.S. Federal Reserve is widely expected to raise interest rates for the first time in almost a decade next week. The dollar remained broadly supported after Friday’s strong U.S. employment data fuelled further expectations that the Federal Reserve will hike interest rates for the first time since 2006 at its upcoming meeting on December 15-16. Separately, market sentiment weakened after data on Tuesday showing that Chinese exports fell for the fifth consecutive month added to fears over a slowdown in China. Exports fell 6.8% on a year-over-year basis in November as weak global demand continued to weigh. Imports were also down, falling 8.7%.Investors have another reason to be cautious on risk assets as the In China, CPI rose 1.5% year-on-year, a tick higher than the 1.4% seen and PPI fell 5.9%, matching expectations. Australia relies on exports to China across a wide basket of commodities. The higher consumer inflation will no doubt limit the room for the People’s Bank of China to further cut interest rates. The PBOC last cut the benchmark one-year deposit rate to 1.5% at the end of October. The producer price index (PPI) fell 5.9 percent in November from year earlier, in line with expectations and flat from October’s drop. It marked the 45th straight month of declines in the index. On a monthly basis, consumer prices were flat, compared with a 0.3 percent fall in October.
- Oil prices rose on Wednesday as U.S. crude stocks dipped, while in Asia Japan posted stronger-than-expected machinery orders and China announced an easing of import taxes, lending the market support amid a continuing supply glut. The firmer WTI prices were a result of a surprise 1.9-million-barrel fall in U.S. crude inventories to 488 million barrels last week. The drop, as estimated by industry group the American Petroleum Institute, compared with analysts’ expectations for an increase of 252,000 barrels. Official figures from the U.S. Energy Information Administration (EIA) are due on Wednesday at 10:30 EST. Traders said the recovery in Brent was largely a result of short covering, the surprise lift in Japanese machinery orders and Chinese tax reforms aimed at encouraging imports, including of energy-intensive machinery. Yet analysts said there remained plenty of bearish factors that have helped pull down global commodity prices since 2014, including the strong dollar, weakening demand, soaring supplies and the unwinding of a quantitative easing (QE) premium, with the U.S. Federal Reserve expected to hike interest rates soon. In oil, a ballooning glut is seen at 0.5 million to 2 million barrels of crude a day in excess of demand, while prices are down by almost two-thirds since 2014. Most analysts say they do not see prices rising much until late 2016 at the earliest.