Asia markets struggle as Chinese shares wilt

Asian shares struggled on Tuesday after a healthcare mega-merger failed to impress Wall Street, while the dollar took a breather from its run to 8-month highs on rising conviction that the Federal Reserve will raise interest rates next month. The mood was expected to carry over into European trading.

Financial spreadbetters predicted Britain’s FTSE 100 would open down by as much as 0.4 per cent, Germany’s DAX would fall as much as 0.4 per cent, and France’s CAC 40 was seen dropping 0.5 per cent.

MSCI’s broadest index of Asia-Pacific shares outside Japan wavered in and out of positive territory, and was last down 0.2 per cent. Japan’s Nikkei ended a choppy session with a 0.2 per cent gain, after a long weekend. Markets were closed for a national holiday on Monday.

“We’re post Japan Inc earnings now and the focus is back on China where local brokers are talking about market reforms, many of which have direct market impacts, which is important because China is a policy-driven market,” said Gavin Parry, managing director of Parry International Trading. “There’s also a continued focus on the U..Federal Reserve, with a lot of sell-side banter about quantifying what level of rate increase brokers are expecting,” he said.

Chinese shares wilted, with the blue chip CSI300 index of the largest listed companies in Shanghai and Shenzhen off session lows but still down 0.2 per cent, while and the Shanghai Composite Index edged down 0.1 per cent.

On Monday, Wall Street marked modest losses as Pfizer's plan to buy Allergan Plc in a $160 billion deal quickly drew criticism from politicians as a tax dodge. "Investors may feel that even if this deal comes through, this will become the last of this sort," said Yoshinori Shigemi, global market strategist at JPMorgan Asset.

Markets showed no immediate reaction to a worldwide travel alert issued by the US State Department, that warned US citizens of the risks of travelling because of what it described as “increased terrorist threats.”

The dollar index, which tracks the US currency against six major peers, edged down about 0.1 per cent to 99.741, after it rose to an 8-month high of 100.00 overnight, within sight of its 12-year peak of 100.39 touched on March 13. Whether the dollar can rise above that peak could depend on the pace of the Fed's rate hikes next year. Markets are currently pricing in two more rate hikes next year after a likely December move. In the meantime, Thursday's US Thanksgiving holiday is likely to give investors few incentives to take new positions. "Thanksgiving week sees a light data calendar. With investors settling on expectations for a dovish Fed hike there remains risk for USD-negative consolidation," wrote Todd Elmer, Citi's Asian head of G10 FX strategy. In contrast to the Fed, the European Central Bank is widely expected to add stimulus next week, including deepening its already negative interest rates that make banks pay, not receive, interest on their deposits at the central bank. The euro gave up about 0.1 per cent to $1.0626, after falling to a 7-month low of $1.0592 in U.S. trade on Monday.

Crude prices marked solid gains after Saudi Arabia pledged to work toward oil price stability. US crude futures were off earlier highs but were still up 0.7 per cent at $42.06 per barrel, up from a three-month low of $38.99 hit on Friday. Brent added 0.6 per cent to $45.08.

Reuters