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Oil slump spooks investors; China stocks get MSCI nod

A renewed slump in oil prices to seven-month lows put Asian investors on edge on Wednesday, overshadowing a decision by U.S. index provider MSCI to add mainland Chinese stocks to one of its popular benchmarks.

The slide in energy costs boosted bond prices and flattened yield curves as investors priced in lower inflation for longer, while safe-haven flows underpinned the U.S. dollar.

The spread between yields on U.S. five-year notes and 30-year bonds shrank to the smallest since 2007 as investors wagered the Federal Reserve might have to delay further rate hikes.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slipped 0.8 percent, with Australia's commodity-heavy market down 1.5 percent (AXJO). Japan's Nikkei (N225) eased 0.45 percent.

In Europe, futures for the Eurostoxx 50 (STXEc1), DAX (FDXc1) and FTSE (FFIc1) were all off 0.3 percent.

Oil had shed 2 percent on Tuesday as increased supply from several key producers overshadowed high compliance by OPEC and non-OPEC producers on a deal to cut global output.

The drop took U.S. crude down 20 percent from its recent high and thus into official bear territory, a red flag to investors who follow technical trends.

On Wednesday, Brent (LCOc1) eased 10 cents to $45.92 a barrel, while U.S. crude futures (CLc1) lost 6 cents to $43.45.

Adding to the uncertainty was news Saudi Arabia's Crown Prince Mohammed bin Salman had replaced his cousin in a sudden shift that made King Salman's 31-year-old son next ruler of the kingdom.

The hit to energy stocks saw the Dow (DJI) end Tuesday down 0.29 percent, while the S&P 500 (SPX) eased 0.67 percent and the Nasdaq (IXIC) 0.82 percent. E-Mini futures for the S&P 500 (ESc1) were 0.1 percent lower on Wednesday.

JOINING THE CLUB

The acceptance of some Chinese "A" shares into MSCI's Emerging Markets Index was seen as a symbolic win for Beijing after three failed attempts. Yet the step is still a small one.

Only 222 stocks are being included and, with a weighing of just 5 percent, they will account for only 0.73 percent of the Emerging Markets Index (MSCIEF).

MSCI estimated the change, due around the middle of next year, would drive inflows of between $17 billion and $18 billion. China's market cap is roughly $7 trillion.

The index provider set out a laundry list of liberalization requirements before it would consider further expansion.

"We suspect that it will be a long time before this happens," wrote analysts at Capital Economics in a note.

"While China's weighting in the MSCI Emerging Markets Index may ultimately rise to 40 percent or so, this rise is likely to be slow," they added. "The upshot is that any initial boost to equities is likely to be small."

The initial reaction was indeed restrained, with China's CSI300 index (CSI300) up 0.5 percent.

MSCI also said it would consult on adding Saudi Arabia to the emerging markets benchmark and that Nigeria will remain a frontier market, but it shocked many emerging market investors by declining to upgrade Argentina from the frontier market category.

In currency markets, the flight from oil benefited the U.S. dollar - the two often move inversely. Against a basket of currencies, it was holding at 97.736 (DXY) having touched a five-week peak overnight.

The euro stood at $1.1131 after hitting a three-week low, while the dollar eased a touch on the yen to 111.27 .

Sterling was still nursing losses at $1.2626. It took a spill after Bank of England Governor Mark Carney hosed down speculation that he might soon back higher interest rates, saying he first wanted to see how the economy coped with Brexit talks.

'A' shares get MSCI nod in landmark moment for China's markets

China's stocks took a major step toward global acceptance on Wednesday, finally winning a long campaign for inclusion in a leading emerging markets benchmark, in what was seen as a milestone for global investing.

U.S. index provider MSCI said on Wednesday Hong Kong time it would add a selection of China's so-called "A" shares to its Emerging Markets Index (MSCIEF) after having rejected them for three years running.

Inclusion in the index marks a key victory for the Chinese government, which has been working steadily over the past few years to open up its capital markets, investors said.

"Given the size and importance of China as an economic superpower, I think this is a historic moment," Kevin Anderson, senior managing director of State Street Global Advisors and head of investments in the Asia Pacific region told Reuters on Wednesday.

"It's a long-awaited and much-debated decision in the past, and I think it's more than symbolic as it will create additional flow of capital and potentially a new segment of institutional investors in the China market."

Traders said MSCI's widely-expected "Yes" decision had been largely priced in, with the announcement triggering some profit-taking in blue-chips, which are no longer cheap after strong rallies this year.

Shanghai shares (SSEC) opened just 0.3 percent higher, and turning negative shortly after opening.

MSCI has been in discussions with Chinese regulators and global investors for four years over whether to add yuan-denominated shares to the Emerging Markets Index – tracked by around $1.6 trillion in assets – but excluded them because of restricted access to China's equity markets.

On Wednesday, the company said China had made enough progress in opening up its markets for MSCI to add a selection of 222 large-cap stocks.

The stocks, which would represent a weighting of just 0.73 percent in the benchmark, will be included via a two-phase process in May and August next year.

The move will see around $17 billion to $18 billion of global assets move into Chinese stocks initially, MSCI executives told reporters on Wednesday, adding that over the long-term the full inclusion of the China market could see more than $340 billion of foreign capital flow into the country.

Sebastien Lieblich, global head of index management research at MSCI declined, however, to provide a likely timeline for the full inclusion of "A" shares, saying it would depend on continued progress on China's reform agenda.

MSCI, he noted, would like to see China further relax controls on repatriating capital out of the country, and act to curb frequent share suspensions.

"It's really in the hands of the Chinese stakeholders, they are dictating the timing. It's very difficult for us to articulate any type of timeline with respect to further inclusion," Lieblich told reporters.

The China Securities Regulatory Commission, which has overseen many key reforms in recent years, welcomed MSCI's decision.

"The inclusion of 'A' shares in the MSCI index is in line with the inevitable needs of international investors and reflects the confidence of international investors in the good prospects for China's economic development and stability of the financial market," the CSRC said in a statement.

RELAXED CRITERIA

MSCI in March relaxed its criteria for inclusion by cutting the number of proposed stocks to 169 from 448 in a bid to address ongoing curbs on repatriating capital from China and investor concerns over the country's high number of suspended stocks.

The 169 stocks can be easily accessed by foreigners through the "Stock Connect" link launched in 2014 and significantly expanded in December.

MSCI said it had increased the selection to include a further 53 domestic Chinese stocks that are also listed in the Hong Kong market, and which will be better known to foreign investors.

Chinese companies listed overseas already account for 28 percent of the EM Index as of May but the addition of domestic, yuan-denominated China stocks could see the country account for as much as 40 percent of MSCI's Emerging Market Index in the future.

The A-share market, including shares from Shanghai and Shenzhen markets, is worth roughly $7.5 trillion, the world's largest after the New York Stock Exchange and Nasdaq.

BlackRock Inc (N:BLK), the world's largest asset manager, endorsed MSCI's decision.

"We believe our clients will benefit from today's decision to bring Chinese equities into mainstream investment," said Ryan Stork, BlackRock's chairman for Asia-Pacific in Hong Kong and one of the company's most senior executives, in an emailed statement.

MSCI also surprised many emerging market investors by failing to upgrade Argentina, leaving its in the smaller frontier markets index, where it has been since 2009.

The index provider also said it would consult investors about adding Saudi Arabia companies to the emerging benchmark and that Nigeria would remain a frontier market, with the possibility of being downgraded to "standalone" status.

U.S. stock futures point to higher open ahead of Fed speakers

Wall Street futures pointed to a higher open on Monday as investors waited for the latest indications for Federal Reserve (Fed) policymakers in what was otherwise expected to be a dormant session.

The blue-chip Dow futures gained 69 points, or 0.32%, at 6:56AM ET (10:56GMT), the S&P 500 futures rose 7 points, or 0.27%, while the tech-heavy Nasdaq 100 futures traded up 36 points, or 0.63%.

With no major economic or earnings reports scheduled for Monday, market players looked ahead to appearances from Fed officials.

New York Fed president William Dudley was scheduled to speak at a business roundtable at 8:00AM ET (12:00GMT), while Chicago Fed chief Charles Evans will speak at the Money Marketeers of New York University event after the market close at 7:00PM ET (23:00GMT).

After the U.S. central bank raised rates last week for the second time this year, markets remained unconvinced that another increase would happen this year. Fed fund futures put the possibility of a rate hike in December at only around 32%, according to Investing.com's Fed Rate Monitor Tool.

The dollar underwent choppy trade around the unchanged mark against major rivals on Monday.

Elsewhere, politics were also under scrutiny Monday as the U.K. and European Union (EU) kicked off discussions on Britain’s departure from the bloc, while European stocks were buoyed by French President Emmanuel Macron’s majority victory in the country’s parliamentary elections over the weekend.

The European stock benchmark Euro Stoxx 50 gained 1.10% by 6:57AM ET (10:57GMT), Germany's DAX advanced 0.94%, France's CAC 40 rose 0.97% though London's FTSE 100 traded up just 0.16% as concerns over Brexit negotiations capped gains.

Earlier, Asian stocks also saw a solid move to the upside.

Japan’s Nikkei 225 rose 0.6% as the yen slipped against the dollar and investors digested mixed trade data with exports up 14.9%, missing consensus, but imports surged a better-than-expected 17.8%.

China’s Shanghai Composite gained 0.7% on the back of robust housing prices.

Meanwhile, oil prices edged higher on Monday, recovering some lost ground after four straight weeks of losses

U.S. crude futures gained 0.27% to $45.09 by 6:59AM ET (10:59GMT), while Brent oil rose 0.38% to $47.55.

Asia shares near two-year high as U.S. hi-tech rebound boosts mood

Japan's Nikkei rose more than 1 percent to a near two-year high on Tuesday, encouraged by rebound in U.S. hi-tech shares as investors bet on solid growth in the economy and corporate profits globally.

European shares seen extending gains, with spread-betters expecting Germany's DAX to rise 0.2 percent from Monday's record closing high. France's CAC is expected to open 0.3 percent higher while Britain's FTSE is seen up 0.1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan held firm near a two-year high struck last week, but was little changed on the day.

Taiwan shares hit a 17-year high but gains in high-tech firms were offset by a decline in Australian shares.

A big focus for Asia is whether index provider MSCI will later in the global day open up its Emerging Markets Index to Chinese mainland shares which have restricted access for foreign investors.

Many investors expect the so-called A shares that make up the majority of China's stock market to likely be included after being rejected on three previous occasions.

The blue-chip CSI300 index of mainland stocks was down 0.2 percent.

Wall Street's S&P 500 and the Dow industrial average hit record highs as technology shares bounced back after some sudden falls earlier this month.

"Hi-tech shares just went through a correction. Their valuation is not that expensive, standing far below their levels at the peak of the dot-com bubble in 2000. Given that their profits are expected to see exponential growth in coming years, it is premature to say the rally in hi-tech shares is over," said Mutsumi Kagawa, chief global strategist at Rakuten Securities.

U.S. financial shares also gained as U.S. debt yields rose after New York Federal Reserve President William Dudley, a close ally of Fed Chair Janet Yellen, said U.S. inflation should rebound alongside wages as the labor market continues to improve.

The 10-year U.S. Treasuries yield edged up to 2.184 percent from a seven-month low of 2.103 percent touched on Wednesday, following surprisingly weak U.S. inflation data.

"Even though the Federal Reserve is about to shrink its balance sheet, possibly as soon as in September, U.S. bond yields are kept at low levels, which are very comfortable for stocks," said Norihiro Fujito, senior investment analyst at Mitsubishi UFJ Morgan Stanley(NYSE:MS) Securities.

"Trade volume is light and whether the market continues to rise depends on whether large cap tech shares continue to rebound," he also said.

The rebound in U.S. bond yields helped to lift the U.S. dollar, which rose to 111.775 yen, its highest level in more than three weeks.

The euro traded at $1.1154, just above its two-week low of $1.11315 set on Thursday.

The British pound slipped slightly to $1.2735 from Monday's high of $1.2814, held back by uncertainty over domestic politics and over Britain's economic future, as formal Brexit negotiations got under way on Monday.

Oil prices flirted with this year's lows as market players saw more signs that rising crude production in the United States, Libya and Nigeria were undercutting OPEC-led efforts to support the market with output curbs.

Brent crude futures traded at $46.92 per barrel, flat on the day and not far from last week's low of $46.70 and five-month low of $46.64 touched in early May.

U.S. crude futures stood at $44.19 per barrel, less than a half cent above its five-month low of $43.76 set on May 5.

Safe-haven gold hit a one-month low of $1,243.2 an ounce as risk sentiment improved, before bouncing back a tad to $1,245.5.

Saudi Arabia stocks higher at close of trade; Tadawul All Share up 0.89%

Saudi Arabia stocks were higher after the close on Sunday, as gains in the Energy & Utilities, Agriculture & Food and Financial Services sectors led shares higher.

At the close in Saudi Arabia, the Tadawul All Share gained 0.89%.

The best performers of the session on the Tadawul All Share were Savola Group (SE:2050), which rose 4.99% or 2.30 points to trade at 48.40 at the close. Meanwhile, Saudi Electricity Company (SE:5110) added 3.79% or 0.84 points to end at 23.00 and Anb Insurance (SE:8011) was up 3.23% or 0.60 points to 19.20 in late trade.

The worst performers of the session were Etihad Atheeb Telecommunication (SE:7040), which fell 9.97% or 0.910 points to trade at 8.220 at the close. Tihama Advertising&Public Relations (SE:4070) declined 4.04% or 1.30 points to end at 30.85 and Fawaz Abdulaziz AlHokair Company (SE:4240) was down 3.23% or 1.30 points to 39.00.

Falling stocks outnumbered advancing ones on the Saudi Arabia Stock Exchange by 92 to 72 and 12 ended unchanged.

Shares in Savola Group (SE:2050) rose to 52-week highs; rising 4.99% or 2.30 to 48.40. Shares in Tihama Advertising&Public Relations (SE:4070) fell to 5-year lows; down 4.04% or 1.30 to 30.85.

Crude oil for August delivery was unchanged 0.00% or 0.00 to $44.97 a barrel. Elsewhere in commodities trading, Brent oil for delivery in August rose 0.81% or 0.38 to hit $47.30 a barrel, while the August Gold Futures contract rose 0.09% or 1.19 to trade at $1255.79 a troy ounce.

EUR/SAR was up 0.45% to 4.1983, while USD/SAR rose 0.01% to 3.7500.

The US Dollar Index Futures was unchanged 0.00% at 96.87.

Yen suffers as eyes shift to Fed speakers

The differing messages of the world's major central banks on inflation and monetary policy prodded the dollar and euro higher against the yen on Monday, with traders eyeing a series of appearances by U.S. Federal Reserve officials this week.

Fed chief Janet Yellen's confidence as her team raised interest rates for the third time in six months last week surprised investors who had expected more caution about the economy.

There are signs, however, that the market does not believe Fed forecasts that show it will be able to continue raising rates later this year and any signs of doubt from other Fed officials speaking this week may hurt the dollar.

The dollar was up just under 0.1 percent against the basket of currencies that measures its broader strength. (DXY)

"I think that the burden of proof for the dollar (to appreciate) is pretty high," said Jeremy Stretch, head of currency strategy at CIBC in London.

"Even if there isn't going to be any outright criticism of Yellen, if you don't think U.S. (10-year government bond) yields are going to be above 2.20 percent then it is tough to buy into it."

U.S. market interest rates point to a less than 40 percent chance of the Fed hiking rates by December and data on Friday showed investors had further reduced net bets on the dollar gaining ahead of last week's Fed meeting.

Friday's Bank of Japan meeting, however, played down even the chance of it beginning to reduce emergency stimulus for the economy and the yen was again weak on Monday, down 0.2-0.3 percent against the dollar and euro. (EURJPY=)

Against the dollar, the euro was 0.1 percent lower at $1.1185 after gaining about 0.5 percent on Friday, taking little from French President Emmanuel Macron's landslide in parliamentary elections on Sunday.

Polls had widely favored Macron and interest in French politics has declined since the risk of a far-right president who might take the country out of the euro abated with his defeat of Marine Le Pen last month.

Sterling was steady ahead of the formal start of negotiations on Britain's planned exit from the European Union, expected by many analysts to generate negative headlines for the currency in the weeks ahead.

"While medium-term (sterling) appreciation is still likely, the tail risks of a no-deal or disorderly Brexit scenarios have increased, and should weigh on (the pound)," currency strategists from Barclays (LON:BARC) wrote in a note to clients.

Prime Minister Theresa May is also still struggling to secure the support of Northern Ireland's DUP party she needs to proceed as a minority government after losing her majority 10 days ago.

The pound was little changed at $1.2796

Gold prices edge higher but hover near 3-week trough

Gold prices edged higher on Friday, but were still hovering near a three-week trough as the greenback remained broadly supported after recent upbeat U.S. data and the Federal Reserve’s decision to raise interest rates.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery were up 0.14% at $1,256.40.

The August contract ended Thursday’s session 1.67% lower at $1,254.60 an ounce.

Futures were likely to find support at $1,250.90, the low of May 24 and resistance at $1,268.50, Thursday’s high.

The greenback gained ground after the release on Thursday of encouraging data on U.S. initial jobless claims, as well as on manufacturing activity in the Philadelphia and New Yorkareas.

The data came a day after the Fed raised interest rates from 1.00% to 1.25%, in a widely expected move.

However, disappointing U.S. inflation data released the same day raised questions about whether the central bank will be able to hike rates again later this year.

On Friday morning, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 97.44, close to Thursday’s two-week high of 97.56.

Gold is sensitive to moves higher in both U.S. rates and the dollar. A stronger dollar makes gold more expensive for holders of foreign currency while a rise in U.S. rates, lift the opportunity cost of holding non-yielding assets such as bullion.

Market participants were now looking ahead to U.S. housing sector and consumer sentiment, due later Friday for further indications on the strength of the economy.

Elsewhere in metals trading, silver futures for July delivery edged up 0.13% to $16.737 a troy ounce, while copper futures for July delivery fell 0.33% to $2.557 a pound.

Forex - Dollar little changed vs. rivals, near 2-week highs

The dollar was little changed near two-week highs against other major currencies on Friday, as the previous session’s upbeat U.S. data and the Federal Reserve’s decision to hike rates continued to support.

EUR/USD was steady at 1.1150, just off the previous session’s two-week trough of 1.1130.

The greenback strengthened broadly after the release of encouraging data on U.S. initial jobless claims, as well as on manufacturing activity in the Philadelphia and New York areas.

The data came a day after the Fed raised interest rates from 1.00% to 1.25%, in a widely expected move.

However, disappointing U.S. inflation data released the same day raised questions about whether the central bank will be able to hike rates again later this year.

GBP/USD edged up 0.08% to trade ar 1.2766, still supported by the fact that three members of the Bank of England’s Monetary Policy Committee surprised markets by voting in favor of a rate hike on Thursday.

The BoE left its monetary policy unchanged on Thursday, in line with market expectations.

Meanwhile, USD/JPY rose 0.19% to 111.13 after the Bank of Japon kept monetary policy unchanged, in a widely expected move, pledging to keep asset purchases around the current target of ¥80 trillion.

"Private consumption has increased resilience against a background of steady improvement in the employment and income situation," the BOJ said in a statement.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 97.44, close to Thursday’s two-week high of 97.56.

Oil tumbles 3% after U.S. crude stocks fall less than forecast

Oil prices sank to the lowest levels of the session in North American trading on Wednesday, extending overnight losses after data showed that U.S. crude supplies fell less than forecast last week, underlining worries over a global supply glut.

The U.S. West Texas Intermediate crude July contract was at $45.76 a barrel by 10:35AM ET (1435GMT), down 70 cents, or around 1.5%. Prices were at around $46.30 prior to the release of the inventory data.

Elsewhere, Brent oil for August delivery on the ICE Futures Exchange in London shed 70 cents to $48.02 a barrel.

Oil prices tallied a gain for a third-straight session Tuesday.

The U.S. Energy Information Administration said in its weekly report that crude oil inventories fell by 1.7 million barrels in the week ended June 9.

Market analysts' expected a crude-stock decline of around 2.8 million barrels, while the American Petroleum Institute late Tuesday reported a supply-gain of about 2.7 million barrels.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, decreased by 1.2 million barrels last week, the EIA said.

Total U.S. crude oil inventories stood at 511.5 million barrels as of last week, which the EIA considered to be at the upper half of the average range for this time of year.

The report also showed that gasoline inventories increased by 2.1 million barrels, disappointing expectations for a decline of 457,000 barrels.

For distillate inventories including diesel, the EIA reported a rise of 328,000 barrels.

Oil prices have been under pressure in recent weeks as concern over rising U.S. shale output offset production cuts by OPEC and non-OPEC members.

The International Energy Agency said Wednesday that the world’s oil oversupply will remain in place through 2017, as efforts led by OPEC to restrain petroleum production have hit a wall in the U.S.

The IEA also said the global levels of stored oil, viewed as a proxy for the global oversupply, grew by 18.6 million barrels in April in industrialized nations.

Elsewhere on Nymex, gasoline futures for July inched down 0.9 cents, or about 0.7%, to $1.475 a gallon, while July heating oil dipped 0.4 cents to $1.443 a gallon.

Natural gas futures for July delivery tacked on 1.1 cents to $2.978 per million British thermal units.

U.S. stock futures slump on hawkish Fed outlook, Trump investigation

U.S. stock futures pointed to a negative open on Thursday morning, as investors continued to digest the Federal Reserve's hawkish message.

Deepening political turmoil in Washington also weighed on risk sentiment, with the Washington Post reporting that U.S. President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice.

The blue-chip Dow futures dropped 94 points, or about 0.5%, by 6:40AM ET (1040GMT), the S&P 500 futures lost 17 points, or around 0.7%, while the tech-heavy Nasdaq 100 futures slid 67 points, or roughly 1.2%.

A slide in technology stocks pulled down the Nasdaq Composite on Wednesday and the S&P 500 ended slightly lower, while financials buoyed the Dow.

The Fed raised interest rates for the second time this year at the conclusion of its policy meeting on Wednesday, putting it in a range between 1.0%-1.25%. The central bank maintained its outlook of one more rate hike for this year, as it expects that a tightening labor market will lift inflation to the 2% target over the medium term.

The Fed also provided greater details on how it plans to reduce its massive $4.5 trillion balance sheet.

Meanwhile, market players continued to monitor political turmoil in the U.S. after the Washington Post reported that President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice.

People familiar with the matter told the Post that the obstruction of justice probe started in the wake of Trump's firing of former FBI Director James Comey.

Attention now turns to a raft of U.S. economic data scheduled for Thursday morning. Weekly jobless claims and import prices are due at 8:30AM ET (1230GMT).

Both the Philadelphia Fed survey and Empire State manufacturing survey are also released at 8:30AM ET. There is industrial production at 9:15AM ET (1315GMT) and the National Association of Home Builders survey at 10AM ET (1400GMT).

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.4% at 97.27 in New York morning trade, moving away from the previous session’s seven-month low of 96.31.

Among active pre-market movers, big name tech stocks were poised to slump for the second time this week, with shares of the top-five tech leaders, Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google parent Alphabet (NASDAQ:GOOGL), all in the red.

Tech darlings like Netflix (NASDAQ:NFLX), NVIDIA (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) were also among the biggest losers in pre-market action.

In other markets, European stocks dropped to their lowest in nearly two months, as investors digested comments from the Federal Reserve and waited to hear from the Bank of England. Earlier, in Asia, equities closed mostly lower.

Elsewhere, oil prices remained below the $45-per-barrel level as data showing U.S crude stockpiles shrank by less than anticipated and gasoline inventories increased unexpectedly last week underlined fears over a global supply glut.