Asian shares retreat as oil slips; yuan pulls peers higher

Reuters: Asian shares fell on Thursday, reversing recent gains following losses on Wall Street, though regional currencies rose after Beijing let the Chinese yuan strengthen to mark the one-year anniversary of a landmark devaluation.

Broad risk sentiment remains on the back foot as oil prices tumbled on news of a surprising jump in U.S. government stockpiles and as Singapore, the region’s bellwether for trade, cut its economic forecast for the year.

“I still think the investors are trying to hang in there for the rally and while the general opinion seems to be that the Chinese authorities have steadied the ship, it is still a bit too early to draw that conclusion,” said Cliff Tan, Bank of Tokyo-Mitsubishi UFJ’s east Asia head of global markets research.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%. It hit a one-year high on Wednesday and has broadly outperformed the MSCI world index since end-June.

Hong Kong and Indonesia led regional gainers in trade. Japan’s markets are closed for a holiday.

Singapore cut its economic growth forecast on concerns over Brexit and weakening global demand with official forecasts downgraded to an expansion of 1-2% this year from a previous forecast of 1-3% growth.

The surprising jump in U.S. government oil stockpiles weighed on the S&P 500 and Dow Jones indices, which closed 0.29% and 0.20% down, respectively.

The energy sector was among the worst-performing of the 10 major S&P groups, falling 1.4% after data from the U.S. Energy Information Administration (EIA) showed U.S. crude inventories rose 1.1 million barrels in the weekend of Aug. 5, a third consecutive weekly rise that surprised the market.

A weakening stock market and strong demand for government debt at bond auctions pushed yields down further.

The yield on the benchmark 10-year Treasury note extended a recent fall to 1.508% while the yield on 10-year UK gilts tumbled to a record low of 0.52%.

The fall in gilt yield came after the Bank of England said it would buy the 52 million pound (US$67.5 million) remainder of Tuesday’s reverse auction shortfall in the second half of its bond-buying program.

In Asia, yields on 10-year benchmark New Zealand bonds fell to 2.18% after the Reserve Bank of New Zealand cut its official cash rate by 25 basis points to a record low of 2.0% as widely expected.

In currency markets, the dollar was broadly flat against a basket of currencies, nursing recent losses sustained in the wake of Friday’s strong U.S. jobs report.

The Chinese yuan led regional currencies higher after the People’s Bank of China let the yuan appreciate slightly to mark the anniversary of the one-year devaluation.

It has weakened by more than 8% since then, though some analysts say that weakness may be fading.

“There have emerged signs the yuan has stabilised somewhat recently as capital outflows have eased and the market has adjusted the expectations on Fed’s rate hike process,” said Zhou Hao, senior emerging market economist, Asia at Commerzbank AG.

More clarity about the U.S. economy’s health and the Federal Reserve’s next move on interest rates could come with Friday’s release of July retail sales and a speech by Fed Chair Janet Yellen later this month.

U.S. West Texas Intermediate crude eased 0.7% lower to $41.41 per barrel after sustaining sharp losses overnight. Brent crude fell 0.6% to $43.77 per barrel.

Gold consolidated overnight gains to trade at $1,343.26 per ounce after posting overnight gains.