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Aug 3, 2016

Asian Markets at Close Report, by MarketWatch on August 3, 2016: Rising Yen Drags Down Nikkei as Oil Unsettles Markets

Kenan Machado

Asian stock markets fell Wednesday, after U.S. oil lingered in bear market territory and a stronger yen dragged Japanese equities lower.

The Nikkei Stock Average NIK, -1.88%   was 1.9% lower, with Australia’s S&P ASX 200 XJO, -1.35%   down 0.9%. The South Korean Kospi SEU, -1.20%   dropped 0.9%, and Hong Kong’s Hang Seng Index HSI, -1.76%   was off 1.6%. The Shanghai Composite SHCOMP, +0.24%   recovered from early losses to trade 0.5% higher.
U.S. oil prices CLU6, +0.58%  rebounded slightly in Asian trade, but the market outlook remained bearish, mostly on news that Nigeria is working on reaching a cease-fire with militants. If that happens, the country’s oil exports will rise, said ANZ Research.
“A weak close overnight for commodity markets will likely linger as investors look ahead to this week’s job data release in the U.S.,” the bank added. U.S. nonfarm payroll data will be released Friday.
Overnight, U.S. oil prices fell to fresh three-month lows as concerns rose that an inventory report Wednesday from the U.S. Energy Information Administration would show supply at high levels. Brent crude LCOV6, +0.48%  recovered slightly to trade up 0.4% at $41.98 per barrel.

Singapore Prime Minister Lee Hsien Loong said on his first state visit to the U.S. that he hopes Congress will ratify the Trans-Pacific Partnership trade agreement, which has stalled.
The development added to bearishness among investors already disappointed by Japan’s stimulus package on Tuesday. Prime Minister Shinzo Abe’s cabinet approved a ¥28 trillion ($276.69 billion) stimulus package but this has only ¥7.5 trillion in new spending to boost the country’s sluggish economy. That sent the yen USDJPY, +0.23%  surging past 101.00 against the dollar on Tuesday, with the currency’s strength continuing on Wednesday.
Doubts over the Bank of Japan’s commitment to its aggressive bond-buying under its quantitative-easing plan pushed the yen higher to trade at ¥100.927 around midday in the Asian session. A stronger yen makes Japanese exports expensive, hurting company profits and, typically, guiding the Nikkei lower.
“There is very little out there to weaken the yen,” said Kay Van Petersen, global macro strategist at Saxo Bank. Markets had largely priced in the stimulus and were looking for a positive surprise to boost investor interest, he said. Going forward, investors will look at U.S. nonfarm payroll data Friday and the run-up to elections there for cues, he said.
Elsewhere, China’s service sector expanded at a slower pace in July, data from Caixin Media Co. and research firm IHS Markit showed. The Caixin China services purchasing managers index slipped to 51.7 in July from 52.7 in June. The fall points to renewed softness in the nation’s service sector despite the government’s efforts to bolster economic growth.
Among key Chinese firms listed in Hong Kong, Chinese oil major Cnooc Ltd. 0883, -4.43%  was sharply lower at 4.1%, while tech giant Tencent Holdings Ltd. 0700, -1.63%  fell 1.3%.
Data from China had a key bearing on Australian bond prices and currency, according to Saxo Bank’s Petersen. China is one of Australia’s biggest customers for commodities, a key mainstay of the latter’s economy.
Read: The RBA can’t stop the Aussie from strengthening
The yield on 10-year Australian debt TMBMKAU-10Y, +5.93%  rose 11.1 basis points to 1.936%, despite market expectations for more rate cuts from the Reserve Bank of Australia. On Tuesday, the central bank cut its overnight money market borrowing rate to an all-time low of 1.50%, responding to record low inflation and a slowing jobs market.