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Topsy-turvy Tuesday likely for Asia

Asia is likely to come under pressure on further declines in crude oil prices

Oil pipeline
Source: Bloomberg

Energy and material sectors will certainly be bearing the brunt. In early trade, Australia and Japan are already lower.

  • Crude oil plunged to a new six-year low on fears that the supply glut is going to persist for longer after the OPEC effectively abandoned its production quota last Friday. WTI futures slump -5.8%, to as low as $37.50 in the overnight session, and added to the -2.7% from Friday.

 

  • Sinking oil prices prompted market participants to sell off energy stocks. US equities gave up some of the gains from Friday in the Monday session, weighed by the energy sector. The S&P 500 fell -0.7%, where energy shares were the largest laggards at -3.7%, followed by materials at -1.8%.

 

  • Europe managed to close higher despite a sharp drop in oil dampening risk appetite. However, looking at the tumble in European stock indices after the ECB meeting on 3 December, one can’t help but think that yesterday’s bounce was a short-covering exercise. The DAX rebounded +1.3% but was unable to regain the 11,000 level.

 

  • Sovereign bonds benefited from the plunge in oil prices, as prospects of lower-for-longer inflation make debt investments more attractive. Yields on 10-year German bunds fell -9.6 basis points, accompanied by a drop of 3.5 basis points in 10-year US treasuries.

 

  • As expected, Japan avoided a technical recession, after stronger-than-expected growth in capital spending prompted talks that the Q3 GDP will be revised higher. Q3 GDP was adjusted from -0.2% QoQ SA to +0.3%. The revision included a +0.6% increase in capital spending, from -1.3% drop initially estimated. The economy grew an annualised +1% in Q3. The JPY was slightly stronger, gaining 10 pips against the USD after the data.

 

  • China trade data is scheduled to be released today. According to Bloomberg consensus, trade balance for November is expected at +$64.15 billion, while exports and imports are likely to improve to -5% YoY and -11.8% YoY respectively, though still in contractionary territory.

 

  • Singapore Exchange announced changes to its organisational set-up. It will combine its sales and products teams across three business areas to increase operational efficiency. Head of Operations and Technology Tim Utama will be leaving the company, but he has agreed to stay on until the transition is over. SGX suffered two market outages last year, and has unveiled plans to spend about S$20 million to enhance its service-recovery capabilities.

 

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