Asia stocks rise as crude oil extends rally on Iran worries

10 May, 2018 9:45 am

TOKYO (Reuters) – Asian stocks rose on Thursday, with energy shares leading the way as crude oil prices bolted higher after US President Donald Trump’s decision to pull out of a nuclear deal with Iran.

MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.4 percent, while Japan’s Nikkei climbed 0.1 percent. South Korea’s KOSPI rose 0.4 percent and Shanghai edged up 0.3 percent.

Brent crude futures rose 0.7 percent to $77.76 a barrel in early trade, the highest since November 2014 and building on gains of about 3 percent on Wednesday. US light crude futures rose 0.8 percent.

But battered emerging market investors got another jolt after a stunning election upset in Malaysia.

Moody’s ratings agency said the country was now in uncharted territory after an alliance of opposition parties led by former prime minister Mahathir Mohamad shocked the ruling coalition.

The ringgit slid more than 2 percent in the non-deliverable forward market and the cost to insure against a Malaysian debt default rose.

“The surprise win by Mahathir’s coalition party is likely to see an increase in policy uncertainty at least in the short term with market volatility likely to be higher,” said Sian Fenner, lead Asian economist at Oxford Economics.

Special public holidays were declared for Thursday and Friday following the elections. But, highlighting investor worries, the US-traded iShares MSCI Malaysia ETF plunged 6 percent overnight to a one-year low.

“Malaysian markets are expected to eventually regain some calm as Mahathir’s win may not spell a dramatic policy departure from those under (incumbent prime minister) Najib,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.

“Malaysia still enjoys a current account surplus and this could help cushion any fiscal spending policies Mahathir could pursue. That said, the opposition parties that won is a loose coalition and it remains to be seen if they can retain a united front.”

Overnight, the Dow gained 0.75 percent and the S&P 500 climbed nearly 1 percent, with the S&P energy index rallying 2 percent.

Energy shares soared as crude oil prices reached 3-1/2-year highs, with investors betting the US withdrawal from a nuclear agreement with Iran would increase tensions in the Middle East and curtail oil supply.

Rising oil prices in turn pushed up US Treasury yields by fanning inflation concerns. The 10-year Treasury note yield rose to a two-week high above the 3 percent threshold before pulling back a little to 2.986 percent.

Shored up by higher yields, the dollar climbed to a 4-1/2-month high of 93.416 against a basket of six major currencies overnight. The dollar index was last at 92.979.

The New Zealand dollar retreated to a five-month low of $0.6916 after the Reserve Bank of New Zealand (RBNZ) wrongfooted hawks by keeping interest rates steady and saying the next move might be a cut or a hike.

“The RBNZ surprised markets with a slight dovish shift. It kept the official cash rate (OCR) on hold, as was widely expected, but notably allowed for the OCR to move ‘up or down’, rather than simply on hold – a slightly dovish development in our view,” said Imre Speizer, economist at Westpac.

The euro crawled back to $1.1869 after slipping overnight to $1.1823, its lowest since late December. The dollar was 0.1 percent lower at 109.665 yen after brushing an eight-day peak of 109.930.

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