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- Asian share markets drifted lower on Wednesday as anxiety mounted ahead of another batch of Chinese data while strength in the U.S. dollar kept the screws on global commodity prices. Markets will be vulnerable to any whiff of disappointment in Chinese figures on retail sales, industrial production and urban investment, particularly given recent downward surprises on inflation and trade. Concerns about Chinese demand were evident in Japan where a Reuters survey showed confidence among manufacturers fell in November for a third straight month to levels unseen in about 2-1/2 years. Yields on sovereign bonds were generally lower as soft Chinese inflation continued to point to global deflationary pressures.
- In currency markets, the euro struggled as political uncertainty in Portugal provided an excuse to sell in a market already bracing for further monetary policy easing from the European Central Bank. The Treasury market is closed on Wednesday for Veterans Day, but Wall Street will be open. The euro nursed broad losses early on Wednesday as political uncertainty in Portugal provided an excuse to sell in a market already bracing for further monetary policy easing from the European Central Bank. Investors took aim at the euro after Portugal’s minority government collapsed as left-wing parties ousted the ruling centre-right. It was the first such move against an elected government since the end of dictatorship in 1974. In contrast, expectations that the Federal Reserve will hike U.S. interest rates in December for the first time in nearly a decade were keeping the greenback underpinned. Markets have already concluded that the Fed will raise rates in December and I don’t think the big picture has changed. I expect the dollar to strengthen further a bit towards the Fed’s policy meeting (on Dec. 15-16).
- Chicago Federal Reserve Bank President Charles Evans, one of the U.S. central bank’s most dovish policymakers, said on Tuesday that he looks forward to the time when the economy is strong enough to handle a Fed rate hike. He also suggested the Fed needs to be careful not to raise rates if it will just have to lower them again shortly afterward, a theme he has hit time and again as he as argued against the rate hike that the Fed is currently considering. The Fed has kept rates near zero for nearly seven years since the 2007-09 financial crisis. “I think it’s extraordinarily costly to contemplate a high probability that we’re going to revisit the zero lower bound, after a period where we’ve gotten ourselves out of this, over the next 10 years,” he said.
- U.S. crude oil prices fell in Asian trading on Wednesday after industry data showed an increase in U.S. stockpiles, while fears that Japan’s economy may have fallen into recession added to demand woes. The price drop came on the back of rising stocks in North America and slowing economies in Asia. U.S. crude stocks jumped by 6.3 million barrels in the week to Nov. 6 to 486.1 mn, data from industry group the American Petroleum Institute showed late on Tuesday, compared with analyst expectations for an increase of 1 mn barrels. On the demand side, confidence among Japanese manufacturers fell in November for a third straight month to levels unseen in more than two years, a Reuters poll showed on Wednesday, reflecting fears that a China-led slowdown in overseas demand may have pushed Asia’s second-biggest economy into recession. The oil market is also looking for any indicators from the Organization of the Petroleum Exporting Countries (OPEC) over its production policy. Since oil prices began falling in June 2014, OPEC has followed a Saudi-led policy of keeping production high in order to defend market share against other producers like Russia and North America, but there are calls from within the group, like Venezuela and Algeria, to cut output to prop up prices. But BNP Paribas said that it expected OPEC and its policy leaders in the Middle East to continue pumping for market share.