Asia Markets

Asia markets retrace gains, Shanghai drops 2.3%

Asia markets higher; Japan trade data in focus
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Asia markets higher; Japan trade data in focus

Asian markets retraced much of their early gains on Wednesday afternoon, with Chinese mainland markets dropping particularly sharply.

The closed down 70.25 points, or 2.31 percent, at 2,972.56, after falling as much as 4 percent earlier in the session, as traders continued to trim holdings on concerns over the country's state-owned enterprises. The Shenzhen composite lost 86.68 points, or 4.42 percent, to close at 1,871.51.

Nomura, in a note Wednesday, advised taking money off the table in China's market.

"We are nearing the point where things are as good as they get for the first half of 2016: China's growth is stabilizing, so is the renminbi exchange rate to the U.S. dollar and capital outflows, while consensus forecasts show low likelihood of a June Fed rate hike," the Nomura analysts said.

"In coming months, rising default among private and state-owned enterprises credit and closure of zombie companies as part of supply-side reforms, could raise headline risk," they added.

Japanese stocks extended gains from the previous session on the back of a relatively weaker yen, with the benchmark advancing 32.10 points, or 0.19 percent, to 16,906.54, having been up more than 1 percent earlier.

Across the Korean Strait, the Kospi gave up morning gains to close down 5.53 points, or 0.27 percent, at 2,005.83. Australia's ASX 200 added 27.18 points, or 0.52 percent, to 5,216, led by a 2.07 percent gain in the materials sub-index. In Hong Kong, the dropped 1.36 percent as of 3:21 p.m. HK/SIN time.


In the morning session, stocks received a boost from overnight weakness in the dollar and advances in oil prices.

Analysts pointed to weak data stateside as causing the overnight drop in the dollar. Rodrigo Catril, a currency strategist with the National Australia Bank, said in a note, "softer U.S. housing data boosted the case for a lower-for-longer Fed, weakening the big dollar along the way."

The dollar index, which measures the dollar against a basket of currencies, closed the overnight session at 93.976. During Asian hours on Wednesday, the index pared some losses to trade up 94.093, as of 3:23 p.m. HK/SIN time. That compares with levels around 94.827 touched Monday.

Catril added that the Japanese yen was the only G10 currency weaker against the dollar overnight, while commodity-related currencies advanced. The dollar/yen finished at 109.17 in the previous session, compared with the 108 level it touched on Tuesday during Asian hours.

In the afternoon local time on Wednesday, after Japan's market close, the yen retraced all of its overnight declines, with the dollar/yen pair trading at 108.80, a 0.34 percent drop from its previous close.

Stephen Innes, a senior foreign exchange trader at OANDA, said, "I think we are starting to see pricing of speculative shorts [on the yen] for a few reasons."

"The market didn't break below the key 107.50 handle on Monday and gradually found support as oil prices started to stabilize," Innes explained in a note. "Add in the backdrop of higher U.S. yields from the buoyant Dow and a resurgent Nikkei."

Major Japanese exporters closed mixed, with shares of Toyota down 0.65 percent, Nissan down 0.97 percent, Honda down 0.91 percent and Sony adding 3.9 percent. A strong yen is a negative for exporters, as it reduces their overseas profits when converted to local currency.

Moreover, many of these exporters were recently affected by the multiple earthquakes that hit the south of Japan late last week.

The likes of Sony, Toyota and Honda have all had to suspend plants in the affected region, with Toyota announcing on Sunday it would suspend production on its vehicle assembly lines in stages, between April 18 and April 23, due to supply shortages resulting from the quakes.

Pedestrians are reflected in the window showing share prices from the Tokyo Stock Exchange in Tokyo. Japanese stocks are likely to receive a boost today after the yen weakened relatively against the dollar overnight.
Yoshikazu Tsuno | AFP | Getty Images

In company news, shares of Mitsubishi Motors tumbled more than 15 percent after one of the its car models reportedly failed a fuel economy test, according to Reuters. The car maker was set to address the issue in a press conference at 5 p.m. local time (0800 GMT), reported Reuters.

The was weaker against the dollar, with the dollar/yuan pair trading up 0.16 percent at 6.4674 as of 3:30 p.m. HK/SIN time.

Down Under, the Australian dollar retreated from its last close at $0.7811 to trade down 0.26 percent at $0.7791 in the evening local time. The Aussie dollar had received a boost from higher oil prices overnight, according to analysts.

In Asian hours, however, oil prices retreated over 2 percent. Global benchmark Brent futures fell 2.29 percent to $43.02 a barrel, after settling up at $44.03 overnight. U.S. crude shed 2.65 percent to $39.99 as of 3:30 p.m. HK/SIN time, after finishing at $41.08 in the previous session.

Crude prices were likely weighed by news that Kuwaiti oil workers ended their three-day strike, according to a report from Reuters that said a trade union posted a statement about the end of the strike on Twitter on Tuesday. The strike had temporarily cut the OPEC member's crude production to as little as 1.1 million barrels per day from about 3 million, said Reuters.

Energy plays in Asia were mixed, with Santos adding 3.19 percent, Woodside Petroleum closed down 1.57 percent, Inpex up 1.97 percent and Chinese mainland shares of Sinopec down 6.38 percent.

In Australia, the ASX 200's heavily-weighted financials subindex erased losses to finish up 0.09 percent, with the country's so-called Big Four banks - ANZ, Commonwealth Bank of Australia, Westpac and NAB - ending mixed, between down 0.67 percent and up 0.69 percent.

Banking stocks sold off earlier during the session after Australian treasurer Scott Morrison announced banks will pay an additional A$120 million ($93.5 million) to increase resources of the market regulator, Australian Securities and Investment Commission, to better investigate financial misdeeds, according to Reuters.

Why Australia stocks will extend their rally despite commodity slump

Elsewhere, the country's resources producers advanced broadly, with major miners Rio Tinto up 4.08 percent, Fortescue higher by 4.22 percent and BHP Billiton adding 3.41 percent.

The gains in resources stocks came after BHP issued guidance before market open; the miner cut its guidance for fiscal 2016 iron ore production by 10 million tonnes to 260 million tonnes, pointing to adverse weather and the initiation of an accelerated rail network maintenance program. BHP's guidance comes just a day after Rio Tinto cut its 2017 production guidance from its Australian iron ore mines.

"This is quite positive for the spot price. As more major miners cut production, concerns about oversupply could finally be cooling down," said Angus Nicholson, market strategist at IG.

Chinese metal plays mostly retreated in the afternoon trade, with Baoshan Steel closing down 0.85 percent and Yunnan Copper lower by 3.96 percent.

prices withdrew in the afternoon trade, down 0.26 percent at $1,246.90 a tonne, after advancing as much as $1,258 earlier.

Overnight, base metal prices on the London Metal Exchange mostly advanced according to Reuters data. But as of 2:40 p.m. HK/SIN time on Wednesday, prices of three month copper were down 0.37 percent, three month aluminum lower by 0.28 percent and three month zinc dropped by 0.98 percent.

Major U.S. indexes finished mixed, with the closing up 0.27 percent and the S&P 500 adding 0.31 percent, while the fell 0.4 percent.

— Nyshka Chandran contributed to this report.

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