Inside Financial Markets

Oil Climbs on Egypt as Asian Stocks Decline; Won Weakens

oilOil Climbs on Egypt as Asian Stocks Decline; Won Weakens

Crude oil rallied above $100 a barrel for the first time in nine months on political turmoil in Egypt and shrinking U.S. stockpiles. Asian stocks snapped a five-day gain, as South Korea’s won and Australia’s dollar fell.

West Texas Intermediate Crude surged 2.4 percent to $101.92 a barrel by 12:08 p.m. in Tokyo, set to close at a 14-month high. The MSCI Asia Pacific Index of equities slid 1.2 percent, ending the longest run of gains since April. The won lost 0.6 percent after the yen breached the 100 per dollar mark for the first time in a month, as the Aussie weakened 0.4 percent. Standard & Poor’s 500 Index (SPX) futures slipped 0.2 percent, while the Shanghai Composite Index dropped 1.9 percent as a gauge of services declined in June.

Sixteen people were killed in a shooting around Cairo University, according to State TV Nile News, after Egypt’s military gave President Mohamed Mursi an ultimatum to restore stability amid nationwide protests. Investors are awaiting data on U.S. jobless claims and payrolls due this week to gauge prospects for the Federal Reserve to pare asset purchases.

“Geopolitical risk in Egypt is stoking some demand from those who want to increase stockpiles just in case of a disruption in oil supplies,” said Leo Baek, a trader at KEB Futures Co. in Seoul. “Improving U.S. data is also adding fuel to demand for energy.”

Oil, Stocks

Adding to the turmoil in Egypt were vows by Mursi’s Islamist supporters to stand firm against what they see as the threat of a military coup. U.S. crude inventories declined by 9.4 million barrels last week, the most this year, data from the American Petroleum Institute showed. A government report today is projected to show they decreased by 2.25 million, according to a Bloomberg News survey of analysts.

The Hang Seng China Enterprises Index tumbled 3.2 percent after China’s non-manufacturing purchasing managers’ index fell to 53.9 percent in June from May’s 54.3, according to official data released today.

The Shanghai Composite index dropped for the first time in four days, heading for the biggest loss since June 24. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, slid 2 percent, sending financial companies to the biggest loss among industry groups.

Australia’s S&P/ASX 200 Index (AS51) slumped 2.2 percent. Retail sales gained 0.1 percent in May, lagging forecasts, while April’s figure was revised down to a 0.1 percent drop, the Bureau of Statistics said in Sydney today. BHP Billiton Ltd., the world’s largest mining company, sank 2.7 percent.

Jobs Data

Data today from the ADP Research Institute may indicate American companies added 160,000 jobs in June, before the Labor Department’s monthly payrolls report at the end of the week that is forecast to show an increase of 165,000 positions.

Global equities have lost about $4 trillion in value since May 22, when Fed Chairman Ben S. Bernanke signaled policy makers could scale back asset buying should the U.S. economy improve in line with forecasts. William Dudley, president of the Federal Reserve Bank of New York, reiterated in a speech in Connecticut yesterday that while growth will probably quicken in 2014, the Fed may prolong bond purchases.

“We’re going to have a bit more of a downdraft” for equities markets in Asia, David Poh, who helps oversee $113 billion as the regional head of portfolio-management solutions at Societe Generale SA’s private bank, said in a Bloomberg TV interview. “We’re a bit more cautious on China at the moment.”

Won, Yen

The won sank to 1,141.53 per dollar after the yen slipped 1 percent yesterday to the weakest close since May 30. Japan’s currency was little changed at 100.63 today. The Dollar Index, which measures the greenback against six major peers, rose 0.1 percent. The Australian dollar traded at 91.10 U.S. cents in Sydney after central bank Governor Glenn Stevens said his nation will need improved confidence to manage the end of a resource boom.

The Korean currency’s decline is “about the strong dollar,” said Kim Dong Young, a Seoul-based currency dealer at Industrial Bank of Korea. “The big trend is irreversible at the moment with all eyes on the Fed’s payrolls report to get a hint of when and how the U.S. will trim stimulus.”

Wheat gained for a second day in Chicago, rising 0.6 percent to $6.6225 a bushel after Egypt bought 180,000 metric tons yesterday in its first tender since February. The world’s biggest buyer may import 9 million tons in 2013-2014, according to the U.S. Department of Agriculture. Copper futures gained 0.4 percent, silver climbed 0.5 percent, while gold rose 0.2 percent.

CDS, Bonds

Bond risk climbed. The Markit iTraxx Asia index of 40 investment-grade borrowers in the region outside Japan rose 2.5 basis points to 152.5 basis points in Singapore, Royal Bank of Scotland Group Plc prices show. The credit-default swap gauge touched a one-year high of 177.8 reached on June 24, according to CMA.

No company in Asia outside Japan is marketing bonds in the U.S. currency as borrowing costs hold near 16-month month highs. Korea Gas Corp. sold a $100 million floating-rate note last week, breaking what was the longest drought in offerings this year. The previous issue was on June 4, data compiled by Bloomberg show. Average yields reached 5.84 percent on June 24, the highest since February 2012, and were at 5.62 percent yesterday, JPMorgan Chase & Co. indexes show.


Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)