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September 20, 2017

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Italy referendum, OPEC stir market uncertainty

HONG KONG -- Asian traders moved cautiously Tuesday, with the recent Trump-fueled rally subdued by profit-taking, uncertainty over a crucial vote in Italy at the weekend and worries about an OPEC plan to cut oil production.

Markets worldwide have soared since Donald Trump was elected U.S. president, on hopes his spending policies will ramp up the world's top economy.

However, analysts said dealers were taking a breather as other issues come to the fore, with the oil reduction plan in immediate focus.

There are increasing concerns that members of OPEC will not be able to agree the details of an agreement in September to reduce output and support prices, with Iran and Iraq saying they should be exempt.

OPEC members and non-members including Russia are scurrying to hammer out a deal before the group's twice-yearly meeting on Wednesday.

The uncertainty has fed volatility on oil markets, with both main contracts diving about four percent Friday but rebounding two percent Monday. Prices were down early Tuesday.

"Whether OPEC manages to make black gold instead of fools gold from its ongoing negotiations, we expect intra-day volatility to ratchet higher again into tomorrow," Jeffrey Halley, senior market analyst at OANDA, said in a note.

'Tug of war'

And Son Jae Hyun, a global market analyst at Mirae Asset Daewoo in Seoul, added: "What we are seeing now is a tug of war among OPEC members to get their share of the pie. If a deal isn't made this time, none of them will benefit."

There is a growing nervousness about a weekend referendum in Italy on constitutional reform. Tensions between Italian Prime Minister Matteo Renzi and the European Union have reached boiling point ahead of the poll and he has suggested he would step down if voters reject the proposal.

There are fears his resignation could spark elections in which populist anti-euro parties could do well, and possibly even lead to the country leaving the EU.

The unease hit European financials, dragging regional markets, while U.S. investors took profits after a string of record closes for the Dow.

Asian markets moved in and out of positive territory through the morning. Tokyo closed down 0.3 percent, while Hong Kong closed down 0.4 percent in the afternoon and Shanghai ended up 0.2 percent.

Sydney slipped 0.1 percent while Seoul, Singapore and Wellington were all flat.

In early European trade London and Frankfurt each dropped 0.2 percent and Paris slipped 0.1 percent.

On currency markets the dollar was subdued, having chalked up multi-month highs against most peers last week on expectations U.S. interest rates will rise in December and again next year.

"The dollar pullback appears to be technical in nature as there was no fundamental trigger for this move," Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney, told Bloomberg News.

Key Figures Around 0800 GMT

Tokyo — Nikkei 225: DOWN 0.3 percent at 18,307.04 (close)

Hong Kong — Hang Seng: DOWN 0.4 percent at 22,737.07 (close)

Shanghai — Composite: UP 0.2 percent at 3,282.92 (close)

London — FTSE 100: DOWN 0.2 percent to 6,784.36

Euro/dollar: DOWN at US$1.0595 from US$1.0615 Monday

Dollar/yen: UP at 112.20 yen from 111.94 yen

Pound/dollar: DOWN at US$1.2400 from US$1.2414

Oil — West Texas Intermediate: DOWN 46 cents at US$46.62 a barrel

Oil — Brent North Sea: DOWN 52 at US$47.72 a barrel

New York — Dow: DOWN 0.3 percent at 19,097.90 (close)

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