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- Asian shares tumbled on Monday after the U.S. Federal Reserve’s decision to keep interest rates at record lows raised fresh concerns about growth globally, particularly in China. Investors will be focusing on flash manufacturing activity readings from China and the Eurozone on Wednesday. An analyst poll showed economists expect the flash September China factory PMI headline reading to edge up to 47.5 from 47.1 in August. But it likely remained near 6/1-2-year lows, pointing to a seventh straight contraction in activity on a monthly basis. U.S. shares dropped more than 1.3% on Friday, after Fed Chair Janet Yellen said on Thursday that the global economic outlook appeared less certain. The FED’s decision to hold interest rates steady last week rather than raise them was a close call, San Francisco Fed President John Williams said. Williams said the U.S. job market was nearly at full strength but increased concern over the global economy and financial system led policymakers on Thursday to hold off on interest rate hikes.
- USD started Monday trade on a firm footing, having recovered recent losses as major central banks were quick to burnish their dovish credentials after the Federal Reserve last week delayed a long-anticipated hike in U.S. interest rates. Yet, traders said the greenback’s recovery was more about position adjustment rather than a return of a bull run given the huge uncertainty surrounding the timing of a Fed hike. With the Fed is having sounded a cautious tone on the health of the global economy, the focus this week will likely turn to China and the flash PMI report on Wednesday.
- The euro slid to $1.1285/EUR, having recoiled from Friday’s peak of $1.1460. Traders said failure to close at a technical level above $1.1400 had also prompted some selling in the common currency. Not helping the euro, the ECB’s chief economist, Peter Praet, reiterated the bank’s “readiness and decisiveness” to modify its trillion-euro bond-buying program should economic turbulence merit decisive action, according to an interview in a Swiss newspaper. Praet comments came after ECB Executive Board member Benoit Coeure on Friday said monetary policy is on diverging paths in the euro zone and the United States.
- Oil prices edged up in early trading in Asia on Monday as U.S. drilling slowed and analysts estimated that $1.5 trn worth of planned American production was uneconomical at prices of $50/ barrel or lower. Crude oil prices have plunged almost 60% since June 2014, when soaring global production started to clash with slowing demand. This includes losses of more than a quarter since June this year as a sharp slowdown in China has sparked concerns over the health of the world economy. Analysts said the low prices were beginning to impact production as drillers slow down new projects, especially in cost-sensitive North America where drillers react fast to changing prices. U.S. energy firms cut oil rigs for a third week in a row last week, a sign that the latest crude market weakness was causing drillers to put on hold production plans, triggering a slight increase in prices on Monday. The current rig count is pointing to U.S. production declining sequentially between 2Q15 and 4Q15 by 255,000 barrels per day at the observed path of the U.S. horizontal and vertical rig count across the Permian, Eagle Ford, Bakken and Niobrara shale plays,” Goldman Sachs said. “The implied year-on-year growth by 4Q15 of 120,000 barrels per day is lower than the prior week’s estimate of 125,000 barrels per day,” it added.