Asia: Shares seen lower as oil slides; US dollar halts

[SYDNEY] Asian equity futures signaled markets may decline Tuesday, weighed down by weaker oil prices and the lingering possibility of a US interest rate increase this year. The dollar halted two days of gains.

Contracts on the Nikkei 225 Stock Average slid and futures on the S&P 500 were little changed after the US closed down 0.1 per cent. A gauge of the dollar was little changed Tuesday after paring gains toward the end of the previous session.

Markets still see the odds of an interest-rate increase by year-end as a coin-toss even after Fed officials highlighted over the past week that they are willing to consider tightening policy.

"Fed speakers have refrained from expressing specific timing on the next hike," according to Rodrigo Catril, a currency strategist in Sydney for National Australia Bank Ltd.

"So although Fed speakers appear to be upbeat on the outlook for the US economy, the vague timeframe for the next hike also reflects a degree of uncertainty. Ultimately, it will all be about the data."

Global markets are watching with trepidation for the next US rate hike and have been whipsawed by comments from regional Fed presidents including William Dudley and John Williams that indicated US borrowing costs may rise as early as next month.

Their remarks set the stage for Chair Janet Yellen, who speaks Friday at an annual symposium hosted by the Kansas City Fed in Jackson Hole, Wyoming. Futures prices indicate about a 51 per cent chance the central bank will increase rates this year, up from a 45 per cent probability a week ago, according to data compiled by Bloomberg.

Allianz SE's Mohamed El-Erian said that Fed officials need to consider the costs of keeping interest rates low, warning that it could create distortions in financial markets, punishing savers and encouraging trades by bond investors looking for better yields.

Futures on Japan's Nikkei 225 fell 0.3 per cent in Chicago from the most recent close of the cash equity market in Tokyo. Hong Kong's Hang Seng Index contracts dropped 0.5 per cent, while those on Australia's S&P/ASX 200 Index were little changed.

The S&P and the Dow Jones Industrial Average each declined for a second day. Marathon Oil Corp sank after announcing the departure of its chief financial officer. Medivation Inc jumped 20 per cent after Pfizer Inc agreed to buy the company for about US$14 billion.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, was little changed as of 8:22 am in Tokyo after racking up two days of gains. The greenback bought 100.33 yen and was at US$1.1319 per euro.

The New Zealand dollar gained 0.1 per cent after Reserve Bank of New Zealand Governor Graeme Wheeler said that, while he intends to lower interest rates further to revive inflation, a series of rapid cuts is not justified.

Oil held its biggest loss in three weeks on concern increased Iraqi exports will compound a global oversupply of crude. Futures were little changed in New York after closing 3 per cent lower on Monday. Iraq will boost shipments by about 5 per cent in the next few days following an agreement to resume exports from three oil fields in Kirkuk.

West Texas Intermediate for October delivery was at US$47.34 a barrel on the New York Mercantile Exchange.

Gold slid 0.1 per cent to US$1,337.79, on course for its third-straight decline.

BLOOMBERG