Hong Kong: Oil prices stabilised Friday following the previous day’s surge fuelled by tensions between the United States and Iran, while Asian equities turned negative as investors took their foot off the pedal following a recent rally.
Fears of a conflict in the crude-rich Middle East ratcheted up Thursday when Tehran said it had shot down a US “spy drone” that was violating its airspace, which Washington denied.
US President Donald Trump described the move as a “big mistake”, adding: “This country will not stand for it.”
The news — which comes a week after the US accused Iran of attacking two tankers in the Gulf of Oman — sent oil prices soaring more than six percent Thursday, while talk has increased of a military stand-off that could deal a massive blow to supplies.
However, after an initial gain the commodity edged down slightly Friday as traders took heart from comments from Trump later, saying he thought it “hard to believe it was intentional”, adding “I think that it could have been somebody who was loose and stupid that did it.”
The president’s mixed message left the world unsure what Washington’s next move would be but observers said the cost of crude could continue to rise.
“If we meld supply risk fear, a powerfully bullish narrative, (the Federal Reserve’s) willingness to execute a pro-cyclical rate cut juicing risk assets and frame it with the potentially game-changing G20, you have the makings of a solid base for oil to shoot even higher,” said Stephen Innes, managing partner at Vanguard Markets.
The focus is also on next week’s planned meeting between Trump and his Chinese counterpart Xi Jinping on the sidelines of the G20 in Japan next week.
Trump’s tweet about “a very good telephone conversation” between the pair this week fuelled a surge across global markets on hopes for a deal to end their countries’ long-running trade war that has impacted the world economy.
However, Asia took a step back Friday, having been given an extra boost by the Fed indicating it will begin to cut interest rates soon, and other central banks erring towards softer monetary policies.
– Gold breaks $1,400 –
Hong Kong dipped 0.3 percent, while Tokyo ended one percent lower and Sydney shed 0.6 percent. Seoul dropped 0.3 percent while Singapore was off 0.1 percent, with Manila, Mumbai and Jakarta also down.
But Shanghai gained 0.5 percent, Taipei added 0.4 percent, and Wellington put on 0.4 percent.
In early trade London and Paris each rose 0.2 percent, while Frankfurt was flat.
The recent rises were “built on the potential for monetary policy support from the Federal Reserve on one side, and the easing of trade tensions on the other”, Alex Dryden, global market strategist at JPMorgan Asset Management, told Bloomberg TV.
However, he warned: “That is not the best basis for building an equity market rally in a sustainable manner.”
The prospect of lower interest rates kept the dollar under pressure against its major peers as well as most higher-yielding currencies including the Chinese yuan, which is at levels not seen since mid-May.
A cheaper dollar and tensions in the Middle East have also ramped up demand for gold — seen as a go-to asset in times of uncertainty and upheaval — sending it above $1,400 an ounce for the first time since 2013.
“Gold jumped more than three percent on Thursday as the Fed left little doubt that an interest rate (cut) is coming and with trade and political tensions still at play the yellow metal was a clear choice for investors looking for a safe haven,” said OANDA senior market analyst Alfonso Esparza.
– Key figures around 0810 GMT –
West Texas Intermediate: UP 10 cents $57.17 per barrel
Brent North Sea oil: UP 15 cents at $64.60 per barrel
Tokyo – Nikkei 225: DOWN 1.0 percent at 21,258.64 (close)
Hong Kong – Hang Seng: DOWN 0.3 percent at 28,473.71 (close)
Shanghai – Composite: UP 0.5 percent at 3,001.98 (close)
London – FTSE 100: UP 0.3 percent at 7,443.78
Euro/dollar: UP at $1.1311 from $1.1289 at 2130 GMT
Pound/dollar: UP at $1.2705 from $1.2702
Dollar/yen: DOWN at 107.20 yen from 107.27 yen
New York – Dow: UP 0.9 percent at 26,753.17 (close)