Stock slump worsens in Asia as Iran sinks crude oil

The worst start to a year for global stocks extended into a third week as crude oil sank to a fresh 12-year low. Demand for haven assets supported government debt and gold, while the Australian dollar strengthened.

Japan’s Nikkei 225 Stock Average was on the cusp of a bear market as Chinese shares fluctuated. Brent crude dipped as Iran pledged to boost exports and Nomura Holdings Inc. predicted a potential drop to $25. Sovereign bonds in the region climbed, and the cost of protecting against corporate defaults in Australia rose to a three-year high. The yuan jumped in Hong Kong as China stepped up efforts to curb foreign speculation against its currency. Malaysia’s ringgit retreated.

“Worries about China, the Fed and global growth are likely to drive continued share market weakness and volatility in the short term,” Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd., which oversees about $115 billion, said by e-mail. “Expect volatility to remain high.”

Iran is aiming to raise shipments by 500,000 barrels a day amid the removal of sanctions, adding to a global glut that’s dragged down oil prices. The energy slump is fueling concern over disinflation, just as the U.S. embarks on tighter monetary policy and as anxiety over China’s management of its slowing economy rattles markets. Figures Monday indicated improvement in China’s property sector, ahead of a swathe of data Tuesday that will include an update on fourth-quarter gross domestic product.

Stocks

The MSCI Asia Pacific Index sank 1.4 percent as of 12:04 p.m. Tokyo time, sliding toward its lowest close since September 2012. Japan’s Topix index slid 1.9 percent and the Nikkei 225 was down 1.8 percent. The Shanghai Composite Index swung between gains and losses, while Hong Kong Hang Seng index retreated 1.6 percent.

Australia’s S&P/ASX 200 Index lost 1 percent, paring an initial slide of as much as 1.8 percent. The bank and resource stock-heavy gauge is down about 19 percent from an April high. BHP Billiton Ltd., the world’s biggest mining company, slid 3 percent.

The Kospi index in South Korea fell 0.4 percent, while New Zealand’s S&P/NZX 50 Index dropped 1.4 percent. The news on Iran saw Saudi Arabian equities slide more than 7 percent during Sunday trading.

Futures on the Standard & Poor’s 500 Index rose 0.1 percent. The U.S. benchmark sank 2.2 percent on Friday, led by technology shares and energy producers to its lowest level since August. U.S. stocks are also off to their worst start to a year on record, with a gauge of volatility expectations soaring on Friday. Markets in the U.S. are closed Monday for a public holiday.

Currencies

The Australian dollar increased 0.5 percent to 68.96 U.S. cents, after retreating 1.7 percent on Friday, while the New Zealand dollar was little changed at at 64.60 U.S. cents after declining 1.3 percent last week. The Malaysian ringgit lost 0.3 percent.

China’s yuan rose 0.4 percent in offshore trading to 6.5868 per dollar, building on its biggest weekly gain since October. The central bank said it will impose reserve-requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25, without saying what level would be used.

The Shanghai Composite Index entered a bear market last week for the second time in seven months, erasing gains from state support efforts amid persistent investor concern over volatility. China’s stock-market watchdog has acknowledged ineptitude and loopholes within its regulatory system after a review of the turmoil that has rocked local markets since June.

Japan’s currency, the best performer among major counterparts this year, was down 0.2 percent at 117.17 per dollar, while the euro traded 0.1 percent lower at $1.0901 after climbing 0.5 percent last session.

Bonds

Australian government debt jumped Monday, with 10-year yields down two basis points, or 0.02 percentage point, to 2.67 percent, set for their lowest close since November.

Rates on similar maturity New Zealand debt fell four basis points to 3.29 percent following a five basis-point-retreat in U.S. Treasury yields on Friday, to 2.04 percent.

Japanese notes due in a decade yielded 0.21 percent, down one basis point in a second session of declines.

Commodities

Brent oil futures slipped to as low as $27.67 a barrel before paring back to $28.58, down 1.2 percent from Friday’s close. West Texas Intermediate crude, which doesn’t settle Monday given the U.S. holiday, dropped 1.1 percent to $29.11, extending losses at its lowest level since November 2003.

“Iran’s additional crude shipments have the potential to further depress prices, perhaps to as low as $25 a barrel,” Gordon Kwan, a Hong Kong-based analyst at Nomura, said by e-mail on Sunday.

Oil capped a third annual loss in 2015 as the Organization of Petroleum Exporting Countries effectively abandoned output limits amid a global oversupply. Iran is trying to regain its lost market share and doesn’t intend to pressure prices with an export increase, officials from its petroleum ministry and national oil company said this month.

Gold for immediate delivery added 0.3 percent to $1,091.78 an ounce, rising for a second day on demand for haven assets. Copper and nickel increased at least 1 percent each in London metals trading. (Bloomberg)