Asian stocks hit 2-mth lows as fast-spreading Delta variant shatters confidence

2021-07-09 | Current Affairs

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WORLDWIDE: HEADLINES 

China’s factory gate inflation slows, outlook dimmed by still-elevated prices 

China’s factory gate inflation eased in June after a government crackdown on runaway commodity prices, but the annual rate stayed uncomfortably high and underlined growing strains on the economy as Beijing tries to bolster a post-coronavirus revival. 

The persistently high inflationary pressures in the industrial sector prompted China’s cabinet this week to flag potential policy easing measures, mainly to support smaller firms. 

Friday’s data from the National Bureau of Statistics (NBS) showed the producer price index (PPI) increased 8.8% from a year earlier, compared with a 9.0% rise in May, and in line with analysts’ expectations in a Reuters poll. 

The NBS also released consumer price inflation data, which showed a slowing last month and limited pass-through from high factory gate prices. 

The PPI, a benchmark gauge of a country’s industrial profitability, inched up 0.3% on a monthly basis, easing sharply from a 1.6% uptick in May, as prices for copper and steel fell. 

The monthly slowdown comes as China, the world’s biggest consumer of both coal and iron ore, has stepped up efforts to rein in runaway metals prices. The measures included selling supplies from state reserves and launching investigation of illegal stockpiling and price gouging. 

“The domestic policy of ensuring supply and stabilizing prices in the commodity sector is showing initial effect, driving an improvement in the market supply and demand, and a slowdown in price gains of industrial products,” said Dong Lijuan, a senior statistician at the NBS in a statement accompanying the data release. 

Yet, some analysts believe the government crackdown will have only a limited impact due to an ongoing imbalance between tight supplies and rising demand by more countries recovering from the pandemic. 

Full coverage: REUTERS  

IMF board backs $650 bln reserves distribution, targets end-August completion 

The International Monetary Fund said on Friday its executive board has backed a $650 billion allocation of IMF Special Drawing Rights, advancing the distribution of currency reserves to the IMF’s 190 member countries towards a targeted completion by the end of August. 

IMF Managing Director Kristalina Georgieva said she will now present the SDR allocation proposal, the largest in the Fund’s 77-year history, to its Board of Governors, with representatives from every IMF country. 

“This is a shot in the arm for the world,” Georgieva said in a statement released ahead of a G20 finance ministers and central bank governors meeting in Venice. “The SDR allocation will boost the liquidity and reserves of all our member countries, build confidence, and foster the resilience and stability of the global economy.” 

The IMF in 2009 distributed $250 billion in SDR reserves to member countries to help ease a global financial crisis. The SDR is the IMF’s unit of exchange and is made up of a basket of currencies — dollars, euros, yen, sterling and yuan. 

To spend their SDRs, countries would first have to exchange them for underlying hard currencies, requiring them to find a willing exchange partner country. 

Georgieva said the new SDR allocation, initially backed by the G20 major economies in April, would have a positive effect on every IMF member country and will particularly help vulnerable countries to strengthen their response to the COVID-19 crisis. 

She said the Fund would actively engage with member countries in the months ahead to “identify viable options for voluntary channeling of SDRs from wealthier members to support our poorer and more vulnerable countries.” 

G20 finance officials are expected to discuss potential SDR contribution mechanisms over the next two days, to low-income countries as well as to some vulnerable middle-income countries and small island states. 

Full coverage: REUTERS 

WORLDWIDE: FINANCE / MARKETS  

Asian stocks hit 2-mth lows as fast-spreading Delta variant shatters confidence 

Asian shares stumbled to two-month lows on Friday and were set for their worst weekly performance since February as confidence took a beating over the global spread of the Delta virus variant and worries it could stall a worldwide economic recovery. 

Investors flocked to the safety of bonds overnight with 10-year U.S. Treasury yields reaching levels not seen since February. 

“Risk aversion is in the air,” said National Australia Bank analyst Rodrigo Catril. 

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slipped 0.9% to 667.99, a level not seen since mid-May. For the week so far, the index is down 3.2%, the biggest decline since early February. 

Japan’s Nikkei (.N225) slid 2%. Chinese shares were weaker too with the blue-chip CSI300 index (.CSI300) off 1.2%. 

Australian shares (.AXJO) dropped 1.6%, with stay-at-home orders in Sydney, the country’s most populous city, tightened further to stop the spread of the Delta variant of the coronavirus.  

Analysts said an accumulation of events have triggered a turn in sentiment rather than a single catalyst. 

Fears central banks will choke economic recovery by tightening policy in their efforts to rein in inflation, a rapidly spreading Delta variant of the coronavirus around the world and still low rates of vaccination have darkened the outlook. 

Also raising concerns for investors were political tensions in the Middle East, Russia and China while Beijing’s crackdown on foreign-listed Chinese firms took its toll too. 

As a result, markets are now starting to question one of this year’s most successful trades, the so called reflation narrative — bets that assets that benefit from a strengthening economy and higher inflation will outperform steadier, safer ones. 

Full coverage: REUTERS 

Oil mixed as U.S. inventories draw offset by OPEC+ standoff 

Oil prices were mixed on Friday after a boost from a drop in U.S. crude and gasoline inventories, but were still set for a weekly decline on concerns that an OPEC+ impasse could swell global crude supplies. 

Brent crude oil futures were down 9 cents, or 0.1%, at $74.03 a barrel by 0140 GMT. U.S. West Texas Intermediate futures were up 1 cent at $72.95 a barrel. 

Both benchmarks were headed for a loss of nearly 3% for the week, as traders remained worried that the collapse of talks between the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, could lead to a rise in crude supplies.  

“A large decline in the U.S. stockpile reinforced views that fuel demand was growing as the U.S. driving season has begun,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities. 

“Since there has not been any major lift in the U.S. shale output, some investors became bullish despite the OPEC+ spat,” he said. 

U.S. crude and gasoline stocks fell and gasoline demand reached its highest since 2019, the U.S. Energy Information Administration said on Thursday, signaling increasing strength in the U.S. economy. read more 

Crude inventories (USOILC=ECI) fell by 6.9 million barrels in the week to July 2 to 445.5 million barrels, the lowest since February 2020, and more than the expected 4 million-barrel drop estimated in a Reuters poll. Gasoline stocks (USOILG=ECI) fell by 6.1 million barrels, exceeding expectations for a 2.2 million-barrel drop. 

Even with oil prices rising toward $75 a barrel, U.S. shale producers are keeping their pledges to hold the line on spending and keep output flat, a departure from previous boom cycles. 

Still, some traders feared members of the OPEC+ group could be tempted to abandon output limits that they have followed during the pandemic due to the breakdown in discussions between major oil producers Saudi Arabia and the United Arab Emirates. 

Full coverage: REUTERS 

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