- Oil prices gain slightly after falling to seven-month lows overnight
- Markets await MSCI's decision on whether China A-shares will be included in its emerging markets index
Asian indexes closed mixed on Tuesday as markets awaited MSCI's decision on the potential inclusion of mainland Chinese stocks, even as the dollar strengthened.
The surged 0.81 percent or 162.66 points to close near a two-year high at 20,230.41.
Markets in greater China were mixed, with Hong Kong's off by 0.21 percent at 3:00 p.m. HK/SIN. On the mainland, the edged lower by 0.13 percent or 4.0719 points to close at 3,140.3020 while the Shenzhen Composite climbed 0.118 percent or 2.2146 points to finish at 1,879.0645.
Investors are keeping an eye on the decision on whether to include China A-shares in the MSCI Emerging Markets Index. This will be China's fourth attempt at MSCI inclusion, after being passed over the first three times.
While MSCI inclusion is not "of vital importance" to China, it will be beneficial in terms of capital flows, said Clive McDonnell, head of equity strategy at Standard Chartered Private Bank.
"If A-shares are admitted to (the MSCI) EM (Index), it could over the longer term have a positive effect on capital inflows to China, which would help support the currency over the medium term," McDonnell said.
Whether China's latest attempt will succeed remains to be seen.
"I still think it's about fifty-fifty as to what will happen," Janus Henderson Investors Portfolio Manager Sat Duhra told CNBC. While China was in the "best position they've been for a number of years" for MSCI inclusion, obstacles — such as the high proportion of suspended stocks — remained, Duhra added.
Overnight, the dollar strengthened and U.S. Treasury yields rose on comments from New York Fed President William Dudley expecting that inflation should rise faster going forward, allowing the Fed to proceed with tightening monetary policy. Chicago Fed President Charles Evans however later said the Fed should move slowly to raise rates and trim its portfolio due to soft inflation.
The dollar edged lower to trade at 97.468 against a basket of rival currencies at 2:58 p.m. HK/SIN after trading as high as 97.615 overnight. Against the yen, the dollar traded at 111.62, hitting its strongest level in more than three weeks earlier in the session.
Meanwhile, the ratings downgrade of Australia's banks, including the big four, by Moody's Investor Services overnight is not expected to affect their funding costs, Reuters quoted Deutsche Bank analysts as saying. The Moody's downgrade of the banks from AA2 to AA3 aligns with S&P's existing AA- rating, said National Australia Bank Currency Strategist Rodrigo Catril in a morning note.
The Australian dollar, which initially sold off on the news, traded at $0.7610 at 3:00 p.m. HK/SIN compared to levels around $0.7596 seen in the previous session.
"Our outlook for the Australian dollar is relatively constructive. We still expect the Australian dollar to head towards $0.77 by year-end, early next year as well. The big support for the Australian dollar is the fact that commodity prices, at least iron ore prices, appear to be bottoming out, or at least forming a base," Commonwealth Bank of Australia Senior Currency Strategist Elias Haddad told CNBC.
As well, the Reserve Bank of Australia released the minutes of its June review that reflected that the central bank was concerned about household debt and wage growth, even though it was positive about growth going forward. The RBA had held cash rates steady earlier this month due to weak growth.
Over in Singapore, Noble Group announced it would be deferring payment on $400 million in perpetual capital securities as it focuses on liquidity. Shares of the commodity trader declined 1.05 percent.
In energy news, oil prices gained slightly after tumbling to a seven-month low overnight. Brent crude rose 0.38 percent to trade at $47.09 a barrel and U.S. West Texas Intermediate crude gained 0.32 percent to trade at $44.34.
Hong Kong CPI and jobless data for the month of May is due at 4:30 p.m. HK/SIN.
On Wall Street, stocks closed higher on the back of big name tech stocks strengthening.
Correction: This article has been updated to reflect that William Dudley is the president of the Federal Reserve Bank of New York.