Asia stocks ease as stronger dollar weighs on crude oil

Saturday, 22 October 2016 00:00 - - {{hitsCtrl.values.hits}}

Tokyo (Reuters): Asian stocks were mostly lower on Friday as the dollar climbed to seven-month highs against a basket of currencies and dragged down crude oil prices, cooling investor risk appetite.

Equities were expected to continue sagging in the European session, with spreadbetters forecasting a slightly lower open for Britain’s FTSE, Germany’s DAX and France’s CAC.

The greenback was boosted by a fall in the euro after the European Central Bank shot down talk it was contemplating tapering its monetary easing - sending the common currency to its lowest since March.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4%.

Japan’s Nikkei brushed a six-month high earlier on a weaker yen but was last down 0.3%.South Korea’s Kospi lost 0.5% and Australian stocks shed 0.2%, weighed down by a retreat in energy shares. Singapore fell 0.7% and Shanghai erased earlier gains and dropped 0.2% as the yuan depreciated.

China’s offshore yuan fell to its lowest level in six years against the broadly stronger dollar.

“Further yuan depreciation, which many people expect, is good for exporters, but it will also have a negative psychological impact and curb risk appetite,” said Yang Hai, analyst at Kaiyuan Securities.

The ECB left its ultra-loose monetary policy unchanged on Thursday but kept the door open to more stimulus in December, with ECB President Mario Draghi dousing recent market speculation that the central bank may begin tapering its 1.7 trillion euro asset-buying program.

“The European Central Bank removed a source of immediate risk for traders by revealing that it did not discuss tapering its QE program at this month’s meeting,” wrote Ric Spooner, chief market analyst at CMC Markets.

“Decisions are being deferred until December pending the outcome of research - meaning that meeting will be a key focus for markets.”

The dollar index touched 98.564, its highest since early March.

The euro was down 0.3% at $1.0902 after seeing a seven-month trough of $1.0896.

The dollar was little changed at 103.900 yen after rising 0.5% overnight.

Sterling slipped 0.1% to $1.2236, taking in stride comments by European Council President Donald Tusk that British Prime Minister Theresa May had confirmed that Brexit talks would be triggered by end-March 2017.

U.S. crude futures were down 0.5% at $50.37 a barrel. The contract lost more than 2% on Thursday as the dollar’s surge prompted profit-taking on a rally that sent U.S. crude to 15-month highs midweek. Brent crude lost 0.4% to $51.16 a barrel.

A stronger greenback tends to increase the purchase cost for non-U.S. buyers of commodities such as crude oil and gold, which are denominated in the dollar.

Spot gold was down 0.15% at $1,263.66 an ounce, although it was on track for a 1% gain on the week.