Asia: Stocks fall as oil rebounds before output talks

[HONG KONG] Asian stocks dropped by the most in two weeks, while haven assets including the yen and sovereign bonds rose as investors weighed prospects of major oil producers agreeing output curbs at talks this week.

Crude rebounded following its steepest drop in two months.

The MSCI Asia Pacific Index extended the last session's retreat from a 14-month high, while futures foreshadowed declines in US and UK equities.

Oil recouped less than a fifth of Friday's slump amid indications Saudi Arabia will agree to cut output to January levels when Opec members and Russia meet Wednesday in Algiers.

Turkey's lira led losses among emerging-markets currencies after Moody's Investors Service cut the nation's debt rating to junk.

Friday's plunge in oil prices knocked investor sentiment, which had been improving after central bank meetings in the US and Japan bolstered expectations that monetary policies in the world's major economies will remain loose.

Money managers increased their short positions in crude by the most in more than a year during the week ended Sept 20, reflecting skepticism that major producers will reach an accord in Algiers after similar discussions in Doha failed in April.

"Oil spot prices will have a big influence on where equities markets are going to trade for the early part of the week," said Angus Nicholson, a Melbourne-based analyst at IG Ltd. "There are uncertainties over whether the Opec members can reach an agreement."

American politics are likely to be high on investors' minds on Monday as the first of three televised debates between presidential candidates Hillary Clinton and Donald Trump takes place. Central bankers will be fairly active, with speeches due from the heads of the Bank of Japan and the European Central Bank, as well as regional Fed chiefs for Dallas and Minneapolis.

STOCKS

The MSCI Asia Pacific Index was down 0.8 per cent as of 1.54pm Tokyo time, after gaining 3.6 per cent last week. Hong Kong's Hang Seng Index fell by the most in two weeks and Taiwan's Taiex index retreated from a 14-month high.

Chinalco Mining Corp. International jumped as much as 28 per cent in Hong Kong after parent company Aluminum Corp of China offered to buy out the unit's minority shareholders.

Hyundai Merchant Marine, South Korea's second-largest container line, surged as much as 12 per cent in Seoul after the company was said to be looking at some assets of troubled rival Hanjin Shipping Co. for a possible acquisition.

Futures on the S&P 500 Index fell 0.1 per cent following a 0.6 per cent drop in the benchmark on Friday, when US energy stocks slumped as oil sank 4 per cent in New York amid speculation the Saudis had dismissed prospects of a deal aimed at stabilising crude prices.

Contracts on the UK's FTSE 100 Index slid 0.4 per cent.

Commodities Crude oil rose 0.7 per cent to US$44.79 a barrel in New York. Algeria's Energy Minister said Saudi Arabia, the world's No. 1 oil exporter, has offered to cut production to January levels to help convince other major producers to agree output curbs this week in Algiers.

Gold fell 0.3 per cent, after climbing 2.1 per cent last week. The precious metal's price swings may become more severe in the final quarter owing to the US presidential election and an expected interest-rate increase by the Fed, according to Citigroup Inc.

Nickel declined 1 per cent in London, pulling back from a one-month high. Investors are awaiting the result of an environmental audit in the Philippines, which may close mines in the world's largest supplier. Copper retreated 0.2 per cent from a seven-week high.

CURRENCIES

The MSCI Emerging Markets Currency Index fell by the most in two weeks as most developing-nation currencies lost ground versus the greenback. The Philippine peso slid to a seven-year low as concern about the policies of President Rodrigo Duterte spurs an exodus of foreign capital.

Overseas investors were net sellers of the nation's shares for the 22nd day in a row on Friday.

The lira sank to a seven-week low versus the dollar after Moody's cut Turkey's sovereign rating to Ba1 from Baa3 on Friday, citing risks related to the country's external financing needs and a weakening of credit fundamentals. The decision marked the end of a review following an unsuccessful coup attempt in July.

The Bloomberg Dollar Spot Index was little changed following a 0.6 per cent loss last week. The yen fell less than 0.1 per cent to 101.07 per dollar.

Former Japanese top currency official Eisuke Sakakibara forecast on Monday that Japan's currency will slowly strengthen, saying in a Bloomberg TV interview that he wouldn't be surprised if it reaches 90 by the end of next year. Sakakibara, dubbed "Mr Yen" for his ability to influence the exchange rate while a senior Ministry of Finance bureaucrat in the 1990s, correctly predicted the currency's advance this year from near 120 to beyond 100.

BONDS

Australian government debt due in a decade rose for a third session, pushing their yield down by three basis points to 1.97 per cent. Rates on similar-maturity New Zealand bonds fell for a fourth day.

Ten-year Treasuries were little changed after their yield slid seven basis points last week to 1.62 per cent. The Fed refrained from hiking interest rates on Sept 21 and lowered its projections for the number of increases in 2017 and beyond.

Still, expectations are that US borrowing costs will be raised by the end of December and analysts see the 10-year Treasury yield climbing to 2.2 per cent by the end of next year.

Foreign central banks have reduced their holdings of US sovereign debt for three consecutive quarters, the most sustained pullback on record, and declines are accelerating, Fed data show. Diam, with US$168 billion in assets under management, has also been shrinking its positions.

"I'm not confident that central banks will keep loose monetary policy going forward," said Hajime Nagata, one of the bond investors for the company in Tokyo. Long-term yields may rise around the world, and Diam trimmed its holdings of benchmark Treasuries about a month ago, he said.

BLOOMBERG