Asia morning update: Oil weighs, A shares gain entry

Adding to the volatility for markets had been the fluctuation of crude oil prices as a driver. The weight from the energy slump in the US could see Asian markets start on weak footing today.

Crude oil
Source: Bloomberg

US crude
Oil bears likely celebrated last night as we saw prices being pushed past support levels briefly. For WTI futures, this dip extended past the $43.43 per barrel (bbl) support, which had been tested before the OPEC agreement was first established in November 2016. For those who favour volatility, black gold certainly seems the place to be.

Prices were seen trading just below $43.50/bbl levels when last checked at 8am (Singapore time). A greater-than-expected slide in private API crude inventories helped to see some reversal, but all eyes are likely to shift to the official DoE report today, expected with a 1.2 million barrel decline. I do not imagine the market would be too shocked at another disappointment after the past two weeks, but a further slide in oil prices would be an undeniable challenge for many US producers moving forward. 

Equities market responded in kind with energy shares slumping 1.25% in the S&P 500 index. This slide had a contagion effect as the S&P 500 index saw broad declines on Tuesday. After printing the biggest 1-day percentage gain in nearly 2-months, the index reversed with the worst drop since 17 May. As things stand, both the Dow and the S&P 500 index remain on elevated levels and may not spark greater concerns. The same may not be said for equity performance for Asian markets today. 

Asian markets 
After mixed performances yesterday, Asian markets are expected to find a wider slide in prices. Early movers in the region have generally came online in red, despite positive news of MSCI Inc.’s decision to include 222 A shares in its Emerging Market Index. The weight from the crude slide are expected to find investors taking some off the table for Asian markets and shifting towards safer assets in the day. 

MSCI A shares 
Notably, A shares’ inclusion had been the key focus overnight and the pleasing result marks a step towards longer term benefit for China’s domestic markets. Chinese authorities have been garnering for this positive decision and this recognition of the country’s efforts in opening up the financial market could really encourage more to be done that could lead to greater capital inflows.

For regional markets, including the local Singapore market, the impact may be second-order and likely only be felt in the longer term. In the near-term, the inclusion could really been seen as symbolic at best with the implementation due only in 12-months. 

Watch for Malaysia’s inflation figures and Japan’s all industry activity index in the day. US existing home sales data update will be watched post-Asian hours ahead of a packed Thursday.

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