Oil, FX bounce from early lows as investors hunt for bargains
HONG KONG : Sterling and Asian emerging market currencies regained some footing on Tuesday and crude oil bounced as investors scooped up beaten down assets after Britain’s shock vote to exit the European Union.
But in a sign that sentiment remained fragile, trading volumes remained light and price action was choppy across markets.
Asian shares were generally weaker, however, despite a 0.6 percent gain in U.S. stock futures ESc1 which suggested a stronger opening on Wall Street later in the day.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.4 percent, after Wall Street marked its worst two-day drop in about 10 months on Monday.
The Nikkei .N225 was down 0.3 percent even as policymakers reiterated concerns about foreign exchange moves.
“Friday’s Brexit jump scare has faded, but markets are still worried” about its possible effect on global demand, SLW brokerage trader João Paulo de Gracia Corrêa said.
In currency markets, sterling GBP=D4 was changing hands at $ 1.3297, after falling to a three-decade low of $ 1.3122 on Monday, its deepest trough since 1985.
Against the yen, sterling rose 1 percent to 135.72 GBPJPY=R, not far from Friday’s 3-1/2 year low of 133.18. The euro stood at 82.93 pence EURGBP=R after scaling a two-year peak of 83.79 pence on Monday.
The euro edged down slightly to $ 1.1041 EUR=, not far above Friday’s three-month low of $ 1.0912 as it faced the impact of the British vote outcome.
“In the near term, risk aversion and market uncertainty makes the euro less attractive to investors,” Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, wrote in a note to clients.
“In the long run, Brexit also raises questions about the Eurozone’s viability because if major countries like Britain start dropping out the EU, nationalism could drive smaller Eurozone nations to exit out of the euro,” she said, adding that she expects the euro to “make another run” for the $ 1.0900 level.
Early signs of a cautious return in demand for riskier assets was evident in the high-yielding Aussie AUD=D3 and the New Zealand dollar NZD=, which helped put a floor under other emerging market currencies in Asia.
Anticipating yet another round of global policy easing by major central banks, government bond yields pushed deeper into negative territory. Yields on ten-year and 20-year Japanese debt plunged to fresh record lows.
Gold XAU=, one of the rare outliers in global financial markets in the last few days, came in for a bit of profit taking with the precious metal down 0.3 percent. Silver XAG= fell 0.4 percent.
Crude oil prices regained some of their overnight losses after tumbling nearly 3 percent on Monday. [O/R]
U.S. crude CLc1 added 1 percent to $ 46.78 a barrel after shedding 2.8 percent on Monday, while Brent LCOc1 rose 1 percent to $ 47.65 after skidding 2.6 percent and touching seven-week lows overnight.
(Additional reporting by Lisa Twaronite in TOKYO; Editing by Shri Navaratnam and Kim Coghill)