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- Asian stocks fell on Monday and China’s yuan hit fresh 4-1/2 year lows as plunging oil prices added to investors’ nervousness about riskier assets ahead of an expected U.S. rate rise by the Federal Reserve later in the week. The People’s Bank of China (PBOC) on Monday continued guiding the currency lowers, setting the yuan/dollar official midpoint at its weakest since July 2011. China decision to loosen its grip on the yuan and allow slow but steady depreciation in recent weeks had added to concerns that the world’s second-biggest economy may be more fragile than expected. The PBOC said late Friday it has begun publishing a yuan index rate against a basket of currencies, seen by some as a green-light for more devaluation which could in turn pressure other emerging Asian currencies. For now, investors looked past better-than-expected Chinese indicators released over the weekend. Data on Saturday showed factory output growth in China accelerated to a 5-month high in November, while retail sales rose at an annual 11.2 percent pace – the strongest this year. ECONCN The forex market is also keeping an eye on the Chinese currency after Beijing surprised some by appearing to shift the management of the yuan, or renminbi, toward a trade-weighted, currency basket basis instead of exclusively tracking the U.S. dollar. China late on Friday launched a new trade-weighted yuan exchange rate index, saying it was intended to discourage investors from exclusively tracking the currency’s fluctuations against the greenback.
- The dollar edged higher against a basket of currencies in Asian trade on Monday with major currencies rangebound ahead of this week’s U.S. Federal Reserve meeting, while China’s yuan depreciated further after the country’s central bank said it has also begun tracking its currency against a basket. Some investors viewed the new index as a green-light for more devaluation, and this view was reinforced when the central People’s Bank of China on Monday set its yuan midpoint rate at its weakest level since 2011. The Fed’s two-day meeting will conclude on Wednesday, and the main question for investors how quickly the Federal Open Market Committee will try to normalize monetary policy going forward, with the first interest rate hike in nearly a decade already priced in to most positions.
- Against the greenback, the euro inched down about 0.1 percent to $1.0964 level EUR=, after it gained more than 3 percent over the past two weeks in a short squeeze after the European Central Bank fell short of delivering the aggressive easing measures that many had expected at its Dec. 3 meeting. The Bank of Japan’s quarterly “tankan” survey released early on Monday showed large Japanese companies largely maintained their upbeat capital expenditure plans for the year to March 2016. BOJ policymakers who meet for a two-day rate review ending on Friday, and are widely seen holding off on expanding the bank’s massive stimulus program.
- Crude oil futures slipped in early Asian trade, adding to a slump on Friday following a forecast from the International Energy Agency (IEA) that the global glut of oil is likely to deepen next year. Both of the oil benchmarks have fallen every day since OPEC on Dec. 4 abandoned its output ceiling. The group has been pumping near record levels since last year in an attempt to drive higher-cost producers such as U.S. shale firms out of the market. “World oil markets will remain over supplied at least until late 2016,” the IEA said in its monthly report, tempering the gloomy outlook by adding “the pace of global stock builds should roughly halve next year.” Last week, oil prices crashed to fresh seven-year lows on Friday, after a bearish report from the International Energy Agency projected that a global supply glut could worsen next year.
- In its December oil market report released Friday, the Paris-based IEA projected global demand growth in 2016 to slow considerably, widening the gulf in the supply-demand imbalance worldwide. Next year, the IEA anticipates that global demand will grow by 1.2 million barrels per day, down from a previous estimate of 1.8 million. “As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market,” the IEA said. The bearish estimates came one day after the Organization of the Petroleum Exporting Countries said it pumped the most crude in more than three years last month, adding to concerns over a glut in global supplies. In its own monthly oil market report published Thursday, OPEC said crude production rose by 230,100 barrels a day in November to 31.695 million, the most since April 2012, as the cartel pressed on with a strategy to protect market share and pressure competing producers. Oil futures are down approximately 14% since OPEC failed to agree on output targets earlier this month. As a result, crude prices are expected to remain stubbornly low amid a glut of oversupply on global energy markets.