Yen Falls, Asian Stocks Surge

Stocks in Asia are higher on Tuesday as strong U.S. manufacturing data sends the yen slumping against the dollar. The stock surge was led by Japanese equities.

Also, the British pound dropped 0.6 percent at $1.2770 versus the dollar in Asian trade, the lowest level it hit in more than three decades.

The sterling started to roil following U.K. Prime Minister Theresa May’s announcement on Sunday that she would push through with Article 50 by end of March next year. This then gets the clock ticking for the two-year deadline for Britain to sever its ties with the European Union. Brexit negotiations are expected to cause “some turbulence” to the economy, according to U.K. Treasury chief Philip Hammond on Monday.

The Nikkei Stock index edged up 0.8 percent, Korea’s Kospi went 0.6 percent higher, while Singapore’s FTSE Straits Times Index ended up 0.2 percent. Hongkong’s Hang Seng Index closed up 0.1 percent. Chinese markets are closed for the week.

“We’re up based on a weaker yen. We’ve had some fairly positive data on the U.S. side last night,” remarked Alex Furber , senior client services executive at CMC Markets. This news makes a U.S. rate increase more probable, he also added.

Gaining traction and moving back into expansionary territory after a 49.4 plunge in August, the U.S. September purchasing managers index, a measure of factory activity, climbed to 51.5.

Solid manufacturing numbers sent the yen plunging 0.7 percent against the dollar, with traders exiting the safe-haven yen and turning back to risk assets. Major exporters gained as yen free-falls, with Honda Motor up at 1.9 percent, Olympus at 3.9 percent, and Panasonic closed 2 percent higher.

In other parts of Japan, financial equities made a rebound after worries about the status of Deutsche Bank prompted selloffs.

The Topix banking subsector added 1.6 percent. Individual banks like Mitsubishi UFJ Financial Group edged up 1.9 percent and Sumitomo Mitsui Financial Group was last up 1.6 percent.

Haruhiko Kuroda, governor of Bank of Japan, went in defense of his below zero interest-rate policy on Tuesday by saying it hadn’t damaged the bank’s ability to grant loans.

Also, yuan-denominated bond issuances hit record high with the Chinese currency’s formal inclusion in the International Monetary Fund’s special drawing-rights basket. Based on data released by Dealogic, there was a $619 billion volume of yuan-dominated bonds for the first three quarters of the year, rising 39 percent on year.

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Oil Soars Higher as Saudi Hints Production Cut

On Friday, the price of oil has surged significantly, extending overnight gains after Saudi Arabia announced its plans to coordinate with other major oil producers to stabilize prices.

The recent comment of the world’s biggest oil producer has been interpreted by most market participants as a move to limit the production of oil. 

By 06:45 GMT, Brent crude futures were valued at $46.12 a barrel, receding from a three-week high of $46.66 posted in the day, though still 8 cents higher from its previous close.

U.S. West Texas Intermediate (WTI) crude was up 21 cents and is currently trading at $43.70 per barrel.

According to a recent update, Saudi Arabia and Russia, two of the world’s largest oil producers, has agreed to make a move to counter a slump that has severely hit economies, markets and companies. The oil producers would talk about a potential action to stabilize oil prices in a meeting in Algeria next month.

“Talk of production cuts in the oil markets saw prices surge overnight,” said ANZ bank on Friday.

The oil prices surged more than 4 percent on Thursday in response to the Saudi Arabia’s minister’s comments, which were interpreted as a positive development in a market suffering from an oversupply.

“Oil traders were spurred into action by the comments” a market strategist said.

Oil prices have been moving in a tight range recently as most market players and analysts were divided on what major producers, especially those who are members of the Organization of the Petroleum Exporting Countries (OPEC), would do to re-stabilize the oil market. 

OPEC has announced earlier this week that its members will meet on the sidelines of an energy conference in Algeria next month, from Sept. 26-28, after the cartel failed to reach an agreement at a meeting earlier this year.

“Markets remain highly skeptical over the potential for coordinated action to balance oil markets, with the failure to reach an output freeze deal earlier this year still fresh in the mind. Nevertheless, the knee-jerk reaction that followed sent crude prices rallying,” said PVM in a note.

Saudi Arabia, the world’s number 1 oil producer, is pumping insane amounts of oil – 10.67 million barrels per day in July – causing some market players to question the kingdom’s sincerity.

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