An ongoing slide in oil prices will likely cruel investor sentiment in Asia Pacific trading today. With both UK and US markets closed overnight major share market leads come from Europe. However a fraying of the Italian political process that could see another election called dampened investor enthusiasm overnight. Caution is today’s watchword ahead of important global data due over the rest of the week.
A combination of building US oil inventories and perceptions of OPEC readying to turn on the taps has crude oil prices down 6-8% in just three sessions. Charts suggest the sell-off is corrective rather than destructive but momentum is clearly negative. While lower oil prices may eventually fuel corporate profits the initial hit to the industrial outlook is dragging on stock markets.
The drop is also fuelled by a resurgent USD as traders desert EUR/USD. Italy’s President appointed a former IMF bureaucrat as interim Prime Minister over the parliamentary choice of a Eurosceptic. The conflicting forces of populism and economic rationalism are key themes and the public contest of ideas may rattle markets for months to come. The Italian MIB index fell another 2% and a European wide measure of stocks shed close to 1%. EUR/USD continued its slide, hitting a fresh six month low.
Asia pacific investors could shuffle to the sidelines ahead of the release of China PMI’s, European inflation and US inflation and jobs data. Futures are indicating opening weakness in Japan and Australia. The deluge starts tonight with US housing market indices.
The exception today could be China exposed markets. The Hang Seng and Shanghai Composite indexes could rise in anticipation of the inclusion of 130 A-share stocks in the MSCI Emerging Markets index on Friday.