Asian stocks slip as Deutsche sours mood and oil prices pull back

Asian stocks extended losses on Friday as worries about the health of Deutsche Bank weighed on financial shares and as oil prices inched back from near one-month highs on scepticism over Opec's new plan to curb output.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost almost 1 per cent and was on track for a 0.8 per cent drop for the week. But it is poised for a 1.7 per cent gain in September, and a 9 per cent jump in the third quarter.

On Thursday, Wall Street lost about 1 per cent as Deutsche Bank shares slumped to a record low after a report that trading clients had withdrawn excess cash and positions held in the largest German lender.

The bank’s US shares closed down 6.7 per cent at $11.48 after earlier falling to as low as $11.185. The immediate cause of Deutsche’s crisis is a fine, disputed by Deutsche, of up to $14 billion by the US department of justice over its sale of mortgage-backed securities. But Germany’s biggest bank has struggled for years, highlighting Europe’s inability or unwillingness to push through tough but much needed financial sector reforms.

A grilling of Wells Fargo’s chief executive by US politicians following a scandal over its opening of client accounts without agreement also helped push the S&P bank index down 1.6 per cent.

A raft of data out of the US next week is also contributing to market jitters, with the chance of a Federal Reserve interest rate hike in December still seen at around 50-50. Numbers to watch include September manufacturing PMI and August construction spending on Monday, non-manufacturing PMI for September and August factory orders on Wednesday and non-farm payrolls for September on Friday.

"People are very nervous going in to next week, with risk factors including the US election and economy, with payrolls coming out next week," said Stefan Worrall, director of Japan equity sales at Credit Suisse in Tokyo. "So it's normal to expect volatility in an air pocket of uncertainly."

Japan’s Nikkei retreated 1.6 per cent after weaker-than-expected consumption and inflation data. It is on track for a loss of 2.7 per cent for the month, but could end the quarter 5.5 per cent higher. While industrial output beat expectations in August, that did little to lift pressure on the central bank to ease monetary conditions further.

Oil prices

Oil prices pulled back after rising 7 per cent in two days after Opec agreed to its first output cuts in eight years. Even if production is scaled back, some analysts doubted the reduction would be enough to make a substantial dent in the global crude glut.

"The accord has not yet defined individual quotas or other forms of accountability, suggesting that this is a soft output cut at best," Francisco Blanch, commodity and derivatives strategist at Bank of America Merrill Lynch, wrote in a note.

“Opec’s action won’t propel prices much above our $70 mid-year target,” he added.

US crude futures slipped 0.6 per cent to $47.56. They closed up 1.7 per cent at $47.83 on Thursday, after climbing to as high as $48.32, the highest level in almost five weeks. They’re on track for gains of 6.4 per cent in September.

Brent crude fell 0.7 per cent to $48.93. They rose 1.1 per cent to $49.24 on Thursday, after earlier touching a three-week high of $49.24. They’re on track to end the month 4 per cent higher.

Currencies

The US dollar advanced 0.5 per cent to 101.52 yen, heading for a 0.5 per cent gain for the week, but down 1.8 per cent for September, and 1.6 per cent for the quarter.

While the yen is headed for its third straight quarter of gains, speculation that Japanese investors may buy more foreign assets in their new business half-year starting from October 1st could stem the Japanese currency’s gains in the near term.

The euro slipped 0.1 per cent to $1.12130, on track to end the month 0.5 per cent stronger. – (Reuters)