The Asian stock market was under pressure on Wednesday as extended losses in Chinese stocks and in the yuan sent waves across the region. Meanwhile, oil continued its rally with the United States urging allies to quit buying Iranian crude.
Chinese blue chips shrunk 2.2 percent to be a fine-line away and above 13-month lows as a resolution of the US-China tensions remained apparently unreachable.
MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped another 0.6 percent after it touched a two-year trough on Tuesday.
Japan’s Nikkei had been performing better. However, it eventually buckled down to risk aversion and slipped 0.3 percent.
European shares were anticipated to open flat, while S&P 500 e-minis were off 0.18 percent.
The volatile mood in Asia overshadowed the increase in energy stocks. The energy stock gains were recorded after the news that Washington was encouraging its allies to stop imports of Iranian crude.
US crude gained 17 cents to $70.70 after it surged 3.6 percent overnight. Brent rose 18 cents to $76.49 per barrel.
The increase in oil improved the Wall Street energy sector pushing 1.4 percent upwards, putting it on top of the biggest gainers on the S&P 500.
However, the S&P still only gained 0.22 percent overall. The Dow gained 0.12 percent, while the Nasdaq perked up 0.39 percent.
The US House of Representatives overwhelmingly passed a bill on Tuesday to tighten foreign investment rules, bolstered by bipartisan worries over Chinese bids to takeover sophisticated US technology.
Meanwhile, the US President Donald Trump also promoted a cautious approach to restricting Chinese investments in US technology companies, stating that an improved merger security review committee could protect sensitive technologies.
“We remain of the view that a large scale ‘trade war’ remains a low probability though the odds of it happening appear to have increased,” stated David Hensley, an economist at JPMorgan.
He also remarked that the latest tariff threats from the White House would cover more than 30 percent of US imports, which is equal to nearly 5 percent of annual economic output.
“If all this were to happen, and US trading partners were to retaliate, it would deliver a significant supply shock to the world economy, raising inflation and lowering growth,” he added.
On the Currency Markets
Meanwhile, in the currency markets, trade-sensitive currencies like the Australian and New Zealand dollars lost some ground. The safe-haven yen found some demand. The kiwi dollar reached its lowest in seven months at $0.6812.
The US dollar was largely firm against a basket of other major currencies at 94.661 after it bounced from 94.171 on Tuesday. The euro was back at $1.1650 after it run into a selloff at a top of $1.1720 overnight.
On the flip side, the dollar didn’t manage to sustain its gains against the yen, easing back to 109.85 from its early 110.12.
The dollar was supported in part by the recent gains on the Chinese yuan, which has spurred speculations that China was enabling its currency to weaken in order to improve exports.
The People’s Bank of China fixed the yuan midpoint at a six-month low of 6.5569 per dollar on Wednesday. That figure was 0.6 percent lower than the previous fix, but it was slightly firmer than what the market expected.
On the other hand, the spot rate continued to drop as the yuan broke past 6.6600 per dollar for the first time since December last year.
“The PBOC’s preference might be to allow moderate weakening, pulling back if depreciation measures started intensifying. But that’s a difficult balance to strike. The chances of a sizeable depreciation have risen,” said economists from Capital Economics in a note.