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GLOBAL MARKETS-Asian shares get lift from Wall St, dollar firms

  • MSCI-Asia rises, Nikkei slumps, but both poised for weekly gain
  • U.S. data reveals no clues on what Fed will do next week
  • Crude oil futures give back some of overnight jump


 Asian shares rose on Friday following gains on Wall Street, while the dollar firmed after facing pressure from a rise in the yuan, but gains were capped by uncertainty over whether the Federal Reserve will raise interest rates next week.


MSCI's broadest index of Asia-Pacific shares outside Japan was up about 0.8 percent, and on track to rise more than 3 percent for the week.

Chinese shares got off to a wobbly start, with the CSI300 index and Shanghai Composite Index up slightly by late morning after bobbing in and out of negative territory.

Investors are awaiting Chinese industrial output, retail sales and investment data on Sunday for clues on whether the world's second-largest economy is continuing to lose momentum, which could set the tone for trading next week.

On Wall Street, major indexes marked solid rises on Thursday, but European stocks broke a three-day run of gains with a drop of nearly 1.5 percent.

Japan's Nikkei stock index dipped 0.1 percent, but pared earlier losses and was poised to end a choppy week more than 2 percent higher, even as investors remained cautious.

"We could still see volatile trading next week on speculation about the Fed rate hike," said Yutaka Miura, senior technical analyst at Mizuho Securities, who expected investors to continue unwinding their positions.

"Even if stocks jump, we don't know if and how long the rally will last so it's safe to reduce positions in an environment like this," Miura said.

Government data released before the market open showed that large Japanese manufacturers' sentiment turned positive in the July-September quarter, suggesting that companies were taking China's recent slowdown in stride.

U.S. data on Thursday suggested the labour market was gaining momentum in early September as fewer Americans filed for weekly unemployment benefits, but a separate report showed weak inflation, further clouding the outlook for what the Fed will decide to do at its Sept. 16-17 policy meeting.

"Based on the performance of the U.S. economy alone, the Fed should raise rates but they do not operate in a vacuum," said Kathy Lien, managing director at BK Asset Management in New York.

Considering volatile global equities, a dovish European Central Bank and actions by other central banks, it will be difficult for the Fed to act, she said in a note to clients.

The dollar index, which tracks the U.S. unit against a basket of six major rivals, edged up about 0.1 percent to 95.523.

The dollar rose about 0.2 percent higher against the yen to 120.81, while the euro was nearly flat from U.S. levels at $1.1281.

The greenback came under pressure overnight as China's yuan shot higher in offshore markets on what was suspected to be rare intervention by Chinese state banks, likely taking aim at speculators betting on further falls in currency after its surprise devaluation last month.

In commodities, U.S. crude oil futures gave back some of their overnight gains after top exporter Saudi Arabia said it saw no need for a producer summit to defend prices.

U.S. crude was down about 0.2 percent in Asian trading at $45.82 a barrel, after rallying 4 percent on U.S. Energy Information Administration data that showed strong demand for gasoline.

Brent, which gained 2.8 percent in the previous session, was slightly lower at $48.87.

Spot gold inched up from U.S. levels to $1,112.20 an ounce, but was still on track to drop nearly 1 percent for the week.


China deflation risks grow, foreign central banks on alert


  • Offshore yuan posts biggest daily gain on record
  • New Zealand cbank governor warns on China risks
  • Cites exported deflation, worries about falling yuan
  • China producer prices down most in six years in August
  • Premier Li says economy faces pressure but no hard landing


 The risk of deflation in China is growing, data suggested on Thursday, as policymakers tried to reassure markets that the economy can stay on track and state banks were suspected of intervening in offshore markets to bolster the yuan.


Some foreign central banks are increasingly worried about the impact falling Chinese prices and a weaker yuan could have on their economies, following a surprise devaluation in the currency last month.

Since then investors have been betting the yuan, or renminbi, could fall further, reflected in a wide spread between the offshore and more-tightly controlled onshore rates.

On Thursday afternoon though a surge of buying sent the offshore rate up more than 1 percent, in what market sources said was a move by Chinese state-owned banks to curb speculation against their currency.

Sliding Chinese stock prices and currency have rattled global markets and prompted a flurry of policies and intervention by authorities to steady the world's second-biggest economy.

Earlier, New Zealand's central bank governor Graeme Wheeler said the yuan devaluation had left them concerned about the risk China may let it slide further.

"We've seen authorities basically say they want to stabilise the renminbi, but if there were to be a very substantial depreciation in the renminbi it would certainly export deflation around the rest of the world, so everybody is looking closely at China," he said at a press briefing following an interest rate cut in New Zealand.

The deflation threat was underlined by data showing that Chinese manufacturers cut prices at their fastest rate in six years, with the producer price index (PPI) down 5.9 percent in August from a year earlier, though consumer prices are rising for now.

"The risk for China is still deflation, not inflation," said Kevin Lai, chief economist for Asia, excluding Japan, at Daiwa.

"PPI deflation will eventually filter down to affect CPI, and aggregate demand will continue to be weak," he added.

A growing worry for overseas central banks like the Reserve Bank of New Zealand (RBNZ) is that falling Chinese factory gate prices coupled with a weaker yuan mean the price of exports from China will fall sharply, feeding downward price pressures into their economies.

Wheeler's comments came despite attempts by Chinese policymakers to reassure global markets that the yuan will remain stable and China's economic growth, whilst slowing, is still set to be around 7 percent this year.

"The RBNZ...verbalised it but this is probably an underlying concern shared by policymakers around the region," said Sim Moh Siong, foreign exchange strategist at Bank of Singapore.



Since the devaluation, China has scrambled to keep the yuan steady, running down its foreign exchange reserves by a record amount in August to stabilise the onshore rate.

Thursday's rise in the offshore yuan was the clearest indication to date that China will also try to stop speculation against its currency outside of the mainland.

"The big picture is that policy makers are doing everything they can do to dampen expectations that the yuan will depreciate much," said Mark Williams, an economist at Capital Economics in London.

The offshore yuan spot rate strengthened more than 1 percent to 6.39 per dollar from 6.4698 earlier in the day.

Chinese Premier Li Keqiang, for the second day running, used a speech to tell business leaders and investors on Thursday that China does not want a currency war and that the slowdown in its growth rate will be modest. The economy grew 7.3 percent last year.

"China's economy will not see a hard landing" he told a gathering of the World Economic Forum in Dalian in northeastern China.

"Once there are signs of economy slipping out of the reasonable range, we will be fully capable of handling (the situation)."

The economic signs are gloomy. After Li spoke, a report showed auto sales in China were flat in the first eight months of the year, raising the spectre of the market's first contraction since the late 1990s.

Global markets' worries about Beijing's handling of the economy and its currency have been exacerbated by China's attempts to stem the slide in its equity markets. Despite a barrage of policies to support stock prices and push out speculators, its equity markets have fallen around 40 percent since June.

The past two days though have seen Chinese stocks push higher, with the positive sentiment feeding into other major equity markets around the world. Still, that optimism was waning on Thursday, with share prices back in the red.

The CSI300 index of the biggest stocks listed in Shanghai and Shenzhen ended down 1.23 percent, while the Shanghai Composite Index was 1.45 percent lower.


Japan business mood rebounds, PM Abe to pressure firms to raise capex

  • Big manufacturers' Q3 sentiment DI +11.0 vs previous -6.0
  • Firms slightly less upbeat on outlook - survey
  • Big firms lift this fiscal year's capex plans
  • Govt to hold dialogue with private firms in Oct on capex


 Japanese business sentiment turned positive in July-September and companies stuck to upbeat spending plans, a government survey showed, offering some relief for policymakers worried about a hit from slowing Chinese growth and ensuing market turmoil.


The poll, the first comprehensive business confidence survey for the current quarter, followed a recent run of gloomy data, including a survey showing the service sector's mood worsening in August.

"Big manufacturers appear a bit cautious about the outlook, probably due to uncertainty over China. But it's not as if they are all gloomy since U.S. demand remains strong," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"Capital expenditure plans remain fairly strong, so I don't think we need to be too pessimistic about the economy," he said.

An index gauging sentiment at large manufacturers stood at plus 11.0 in July-September, rebounding from minus 6.0 in the previous quarter, a joint survey by the Finance Ministry and a research arm of the Cabinet Office showed on Friday.

Companies plan to raise capital expenditure by 6.1 percent over the business year that started in April, revised up from the previous poll's 5.9 percent gain, the survey showed.

But the index gauging big manufacturers' business conditions in October-December fell slightly, a sign some of them are feeling the pinch from weakening demand in China.

Higher capital spending and wages are critical to the success of Prime Minister Shinzo Abe's reflationary policies known as "Abenomics", which aim to prod companies into spending more instead of sitting on huge cash piles.

After having pressured companies into raising wages last year, the government hopes to nudge them into boosting capital expenditure in a rare dialogue with private firms in October.

"We need to strengthen Japan's domestic demand to offset any negative impact from overseas economies," Economics Minister Akira Amari told reporters on Friday.

"From that perspective, we want to hold a public-private sector dialogue and one area we would look at is how companies are using their cash reserves," he said.

Japan's economy shrank in April-June and growth is expected to rebound only modestly in the current quarter as sluggish Asian demand hurts exports, keeping policymakers under pressure to offer further fiscal or monetary steps to rev up growth.

The survey's index measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen.


Brazil downgrade leaves little choice but austerity for Rousseff

 Brazil's government scrambled on Thursday to reassure investors it will impose austerity measures to put public finances in order after its credit rating was downgraded to junk status.


President Dilma Rousseff called an emergency cabinet meeting to brainstorm on policies to bridge a fiscal shortfall and how to win their approval by a Congress that has been reluctant to sign off on unpopular belt-tightening measures.

"The plan is to come up with something in the next couple of weeks that we can work on with Congress," Finance Minister Joaquim Levy told journalists.

The Standard & Poor's rating agency on Wednesday stripped Brazil of its hard-won investment grade rating, downgrading it to "junk" sooner than the government and investors had expected.

The downgrade appeared to strengthen Levy's position. He has been the government's face of austerity but his push for deeper spending cuts to improve Brazil's finances and avoid a downgrade faced resistance inside the cabinet and Congress.

Levy said the new round of measures will combine cost-cutting with tax increases. He did not specify what they might be, but said the downgrade forces policymakers into action.

Some senior officials backed that view.

"This is a wake up call for Brazil, for Congress and for the government," said Senator Eunicio Oliveira, leader of the PMDB party, Rousseff's main coalition ally. "There is no alternative but to cut spending and feel the pain."

Rousseff, a leftist who has repeatedly used stimulus packages to try to grow the economy and has failed this year to define a clear path out of recession, changed her tone on Thursday.

In a newspaper interview, the beleaguered president, who recently proposed a 2016 budget with a deficit, said she is now committed to achieving a primary budget surplus equal to 0.7 percent of GDP.

In addition to cost-cutting, the government will pursue tax hikes to raise revenues, she said. "Unequivocally, we have to expand revenues."

Brazilian assets fell in early trade but later recovered some ground. The real currency ended 1.3 percent lower and the Bovespa stock index was off 0.3. percent.

Levy said the new belt-tightening measures would help Brazil, winded by the collapse of a global commodities boom, adjust to lower growth and demand in China.

"This is not a country on the edge of crisis. It's a country that is adjusting itself for a very different global environment," he said in a television interview. "The sooner we adjust, the less costly that transition will be."



To succeed, Rousseff will have to win cooperation from her unruly allies in Congress, which has so far this year largely bucked austerity and in some cases increased spending, not to mention opposition lawmakers, many of whom support calls for her to resign or be impeached.

"The president has no credibility in Congress and many here doubt her ability to continue governing," said Danilo Forte, another PMDB lawmaker. "Raising taxes will be politically very difficult."

The government must also overcome its own divisions.

Levy has crossed swords with Nelson Barbosa, the influential planning minister and a longtime proponent of state-led development policies.

That has led investors to perceive the government's efforts to impose more fiscal discipline as half-hearted.

In announcing the downgrade, S&P questioned the government's "ability and willingness" to deliver sound economic policy. On Thursday, the agency said it expects Rousseff to face political difficulties in trying to cut deficits.

Stalwarts within the ruling Workers' Party, along with some business groups keen for more of the easy credit and tax breaks that Rousseff first used to counter the economic downturn, are still urging the government for more stimulus.

Former President Luiz Inacio Lula da Silva, Rousseff's mentor and predecessor, played down the impact of S&P's move, a posture that differs with the triumphant stance he took when Brazil won investment grade status in 2008, during his presidency.

The downgrade "doesn't mean anything," he said during a speech in Argentina. "It just means that we can't do what they want us to do. We have to do what we want to do."

But economists say the government has little incentive to ignore investors if it wants to avoid further downgrades by other rating agencies, a move that would make borrowing even more costly and further undermine market confidence.

A rebound "will depend on the country's ability to set up some kind of war cabinet to deliver the measures," said Octavio de Barros, chief economist at Bradesco, Brazil's second-largest private sector bank.

 Oil dips as Saudi rejects producer summit, set for weekly fall



  • Saudi sees best to leave oil market alone at present
  • EIA data shows strong U.S. gasoline demand
  • U.S. crude stock build; delivery hub stock falls

Crude oil prices eased on Friday due to a strong dollar and Saudi Arabia's dismissal of a producer summit, putting prices on track for a small weekly fall despite a strong rally in the previous session.


October Brent, the global oil benchmark, shed 16 cents to $48.73 a barrel as of 0352 GMT after it settled up $1.31, or 2.8 percent, on Thursday at $48.89 a barrel.

October U.S. crude lost 29 cents to $45.63 a barrel after it settled up $1.77, or 4 percent, at $45.92 a barrel.

Saudi Arabia believes a summit of oil producing countries' heads of states would fail to produce concrete action toward defending oil prices, sources familiar with the matter said on Thursday.

The comments followed a meeting of Gulf Arab oil ministers with Qatar's emir in Doha, at which a Venezuelan proposal for an OPEC and non-OPEC summit was discussed.

The U.S. dollar edged higher in Asian trading on increased chances of more easing in Japan. A firmer U.S.dollar makes oil more expensive for holders of others currenciees.

Oil prices rallied on Thursday after U.S. Energy Information Administration (EIA) data showed demand for gasoline over the latest four-week period rose almost 4 percent on a year ago.

While crude inventories rose by 2.6 million barrels to 458 million barrels in the past week, compared with analysts' expectations for an increase of 933,000 barrels, crude stocks at the Cushing, Oklahoma, delivery hub fell by 897,000 barrels to 56.41 million barrels, EIA said.

"Crude oil stocks appear to be stabilising as refinery demand continues to fall, not surprisingly as refining margins have considerably weakened," BNP Paribas said in a note.

Russia's energy minister expects cuts in global shale oil production to help stabilise the oil market. Alexander Novak also reaffirmed that Russia, one of the world's top oil producers, would not cut its own production.

Asian shares rose on Friday following gains on Wall Street, while the dollar firmed after facing pressure from a rise in the yuan, but gains were capped by uncertainty over whether the Federal Reserve will raise interest rates next week.

The U.S. labour market appeared to gain momentum as fewer Americans filed for weekly unemployment benefits, but weak inflation pressures may complicate the rate decision.

Saudi sees no need for oil summit, best leave market alone -sources


Top oil exporter Saudi Arabia sees no need to hold a summit of producing countries' heads of state if such discussions would fail to produce concrete action toward defending oil prices, sources familiar with the matter said on Thursday.


The comments followed a meeting of Gulf Arab oil ministers with Qatar's emir in Doha, at which a Venezuelan proposal for an OPEC and non-OPEC summit was discussed.

Oil prices have more than halved since summer last year on an oversupplied market as well as a decision by OPEC to defend market share and discourage competing supply sources, rather than cut its output in the face of cheaper crude.

Riyadh believes it is best not to interfere in the market at present, the sources told Reuters on condition of anonymity.

One OPEC source said that should such a meeting produce no concrete outcome, it would have a negative impact on prices.

"If we are meeting for the sake of meeting, it would backfire," the source said.

Earlier on Thursday, Qatar's energy minister said members of the Organization of the Petroleum Exporting Countries and non-OPEC producers were studying the Venezuelan proposal. "But we are in the study phase," Qatar's Mohammed al-Sada added.

Cash-strapped Venezuela has for months been pushing for an emergency OPEC meeting with Russia to stem the tumble in prices.

"I've made a proposal and I know that the 'empire' is trying to sabotage it around the world," Venezuela's President Nicolas Maduro, who routinely refers to the United States like that, said in a speech on Thursday night.

"I'm proposing a presidential summit of OPEC and non-OPEC producers to take measures to defend the market and the price, measures that can be taken calmly, exercising sovereignty. The consultations are underway. There's some good news on the one hand, but a lot of conspiring on the other."

The price of Venezuela's barrel had dropped to $39 on Thursday, he added.

Non-Gulf members want OPEC to take action. Algeria has written to OPEC expressing concern about the market and Iran has supported the idea of an emergency meeting.

But the Gulf OPEC members have opposed holding an early meeting and show no sign of changing strategy.

OPEC last held a heads-of-state summit in Saudi Arabia in 2007, when oil prices were on their way to a record high of $147 a barrel reached a year later.

Gulf oil sources see no sign of Saudi Arabia wavering particularly when other OPEC members such as Iraq are raising production, and Iran is gearing up to boost exports by next year.

OPEC's strategy needs time to work and they are willing to wait, they say.


Gold firms near $1,110 but poised for third weekly drop


  • Gold steady after small overnight gains

Gold clung to small overnight gains near $1,110 an ounce on Friday, but the metal was headed for a third consecutive weekly fall as investors continued to fret over the timing of a looming U.S. interest rate hike.


Spot gold was little changed at $1,111.55 an ounce by 0317 GMT, after gaining 0.5 percent in the previous session.

Earlier in the week, gold had fallen to $1,101.11, the lowest since Aug. 11. It has lost 1 percent for the week.

U.S. gold, also headed for a third weekly dip, was trading at $1,110.90.

"It is hard to get too enthusiastic about gold currently," said HSBC analyst James Steel. "We are likely to see sideways trading until the FOMC," he said referring to the U.S. Federal Open Market Committee meeting.

Physical demand, which has provided little support for prices, could pickup if gold drops below $1,100, he said.

Traders are awaiting the Federal Reserve's next policy statement on Sept. 17 for clues on the timing of a U.S. interest rate rise, before taking any big positions in gold.

Concerns over slowing growth in China, mixed economic data and volatility in financial markets have increased uncertainty about the timing of any U.S. interest rate increase, which had been expected as early as this month.

Data on Thursday showed the U.S. labour market appeared to gain momentum in early September as fewer Americans filed for unemployment benefits, but weak inflation pressures may complicate the Fed's decision.

Bullion has benefited in recent years from ultra-low rates, which cut the opportunity cost of holding bullion while holding the dollar in check. But expectations that rates will rise soon have pushed the metal down 6 percent this year.

BNP Paribas SA revised its gold price forecast for 2015 on Thursday, citing strength in the U.S. dollar and concerns over the Chinese economy. The bank cut its price forecast by $15 to $1,145 per ounce for the year.

Among other precious metals, silver was headed for a weekly gain, while platinum was set for a third weekly dip. Palladium has been the best performer in the group this week, snapping three weeks of losses to rise 3 percent.