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- Asian share markets advanced on Monday after a lackluster start, defying a dive on Wall Street, and the price of Brent crude threatened to plumb lows last seen in 2004 on renewed worries over a global oil glut. The market took a hit late Friday after the Bank of Japan announced some changes to its massive stimulus program but stopped short of expanding the net amount of assets it buys, disappointing some who had hoped for a more aggressive move. The flight from stocks was a boon for safe-haven bonds. Longer-dated Treasuries have been particularly popular as investors wager the Federal Reserve is well ahead of the curve on inflation after last week’s rate hike.
- Gold also benefited from the weakness in equity markets. Retaining sharp gains from the previous trading session helped the metal recoup some losses from last week’s U.S. interest rate hike. Other commodities however didn’t fare as well. London copper edged back as weak demand outweighed news that China’s smelters are considering deeper production cuts. The global background is one of disinflation given the weakness in oil and other commodity prices and the mounting spare capacity in major exporters such as China. Inflation expectations for five years ahead have taken a marked turn lower this month, dropping to 2.11 percent from a high of 2.24 percent.
- The dollar drifted lower in light Asian trading on Monday amid doubts about how far and fast the Federal Reserve would raise U.S. interest rates next year. The dollar eased to 121.20 yen JPY= and further away from Friday’s brief peak of 123.59. The euro edged up to $0.0867 EUR and the dollar was a shade weaker against a basket of major currencies at 98.680 The yen held gains made after Friday’s decision by the Bank of Japan to merely tweak its stimulus campaign rather than outright expand the amount of assets it buys. The resulting shakeout of long dollar positions was eerily reminiscent of the reaction to the European Central Bank’s policy easing early in the month, which also disappointed the market’s lofty expectations.
- A Reuters poll of 120 economists found the Fed would hike rates again in March, but probably would not move as quickly next year as policymakers have suggested. Investors have reacted by pairing back what had become a very crowded wager on further gains in the dollar. Net long positions in dollars fell to their lowest since early November, according to Reuters calculations and data from the Commodity Futures Trading Commission. One of the more hawkish board members at the Bank of England told the Daily Telegraph that the factors pushing down on inflation had “become a bit more prolonged” which offered “breathing space” before tightening. Martin Weale was one of two BoE rate-setters who pushed in vain in late 2014 for higher borrowing costs, so his concession suggested there was little risk of a hike near term.
- Brent crude prices fell on Monday to their lowest since 2008 on renewed worries over a global oil glut, with production around the world remaining at or near record highs and new supplies looming from Iran and the United States. Both benchmarks are down more than two-thirds since mid-2014 when the rout began. Analysts said a strong dollar following last week’s U.S. interest rate hike, which makes oil consumption more expensive for countries using different currencies, as well as a renewed increase in U.S. oil rig counts were weighing on crude prices. The U.S. glut adds to global oversupply as the main producers, including Russia and the Organization of the Petroleum Exporting Countries (OPEC), pump hundreds of thousands of crude every day in excess of demand ussian production has surpassed 10 million barrels per day (bpd), its highest since the collapse of the Soviet Union while OPEC output also remains near record levels above 31.5 million bpd. Adding to the existing glut is that new oil is likely to become available soon, with Iran hoping to ramp up sales in early 2016 once sanctions against Tehran are lifted. Iran will export most of its enriched uranium to Russia in coming days as it rushes to implement a nuclear deal and secure relief from international sanctions, Tehran’s nuclear chief was quoted as saying over the weekend. This comes only days after the U.S. voted to lift a 40-year-old ban on crude exports which could see some of its excess production dumped on the global market. On the demand side, there are also bearish factors as most of the northern hemisphere is experiencing an unusually mild start to the winter due in part to the El Nino weather phenomenon, denting heating oil demand.