Asian markets falter on Iraq unrest

Monday, June 16, 2014

Asian benchmark indices got off to an uncertain start to the week with Chinese stocks rising on PBOC intervention and Japanese equities slipping slightly as geopolitical tension reduced risk appetite. Both the CSI 300 and Shanghai Composite rallied higher after the PBOC increased the number of lenders eligible for reserve requirement ratio cuts, leading a rally in the banking sector. The ratio was also reduced by 0.5% for most eligible lenders and with tax breaks and increased public spending Beijing hopes the efforts will help shore up the economy and promote further growth amid the recent slowdown. Unrest in Iraq weighed heavy on the wider sentiment in Asia as the expanding territorial reach of ISIS prompted a sell-off in Japanese benchmark indices.

The escalating violence in Iraq has supported gold prices higher with prices this morning rallying above $1,280/oz, their highest level since May 27th. Risk aversion over the past week has seen spot prices gain consecutively higher in the past four sessions and prices today remain on track to extend the bull run as haven demand increases. However, near term resistance towards both the 50 day and 200 day moving averages around $1,286-7/oz may depress further significant upside potential and with a busier week in terms of US macro data we could see softer demand for the yellow metal if economic releases surprise on the upside.

Front month Brent futures remain well supported towards $113/bbl after testing levels towards $114.70/bbl on Friday. After trading range-bound over the past three months prices rallied 2.75% on Thursday as market participants reacted to the news that militants had taken control of Mosul, Iraq’s second largest city, and had also taken control of a pipeline to the 310K bpd Baiji refinery. Investors will be paying close attention to any further developments but with the concentration of fighting limited to the north and west of the country, major oilfields in the southern region remain intact, any contagion of violence towards the south could see further risk premium added to front month Brent futures.

Sterling rose above 1.70 against the dollar for the first time since May 2009 as investors continued to digest the hawkish tones from Mark Carney made last week. Deputy Governor, Charlie Bean, also struck a bullish tone for the UK economy in a Sunday Times interview stating that a rates rise would “be an indication that we are on the road back to normality”. Investors will be paying close attention to inflation data due out tomorrow as well as the release of BOE minutes from the June 4th-5th meeting while retail sales data released towards the end of the week will provide further insight into the condition of the economy.

Spot gold prices rally higher on increasing safe haven demand

XAU Curncy Gold Spot Oz 2014 06 16 07 31 52 

Brent prices maintain support towards $113/bbl

CO1 Comdty Generic 1St CO Fut 2014 06 16 07 39 56

Sterling rallies briefly above 1.70 against the dollar on hawkish BOE comments

GBP Curncy British Pound Spot 2014 06 16 07 50 56


Events for today

1000

EZ

May

Inflation Final

1330

US

Jun

NY Fed Manufacturing

1415

US

May

Industrial Production

Topics: Equities, Gold, Brent, GBP
More from: Kash Kamal