Asian equities resist Saudi anxieties and Italian budget

TOKYO (Reuters) – Asian stocks collapsed on Tuesday, as Saudi Arabia 's diplomatic isolation was a cocktail of negative factors, which sparked worries over the trade wars that rocked the region.

Sales in Asia wiped out the gains from the resumption of the previous two sessions driven by Chinese stimulus hopes, with the broader Asia-Pacific equities index (MSCI) out of Japan falling 2.2 %. Declines in many regional benchmarks also exceeded 2%.

European equities are likely to be under pressure with the French CAC and the German DAX poised to exceed their lows in 2018. Companies that exceed the gap see the CAC drop by 0.6% and the 0.9 dax %. The British FTSE is down 0.5%.

Kospi in South Korea and Hang Seng in Hong Kong both fell 3% while Nikkei in Japan lost 2.7%. The MSCI index for the region, including Japan, hit its lowest level since May 2017.

"We had some negative factors when the market sentiment was already fragile," said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management. "And the profits of some Japanese companies have been lower than expected, with some starting to blame trade wars."

US equity futures fell 1.0% in Asia. On Monday, the S & P 500 index lost 0.43%, as investors kept a cautious look at earnings despite worries about global growth. The enthusiasm aroused by the optimistic results has been tempered by the growing political uncertainty around the world.

"In short, the world seems to be falling into chaos," said Akira Takei, bond fund manager at Asset Management One.

US President Donald Trump said Monday that he was not satisfied with what he had heard from Saudi Arabia about the assassination of journalist Jamal Khashoggi at his consulate in Nairobi. Turkey, but has expressed reluctance to punish the kingdom economically.

While Saudi Arabia sought to protect its powerful crown prince from the killing, many officials questioned Riyadh's story.

Several countries, including Germany, Britain, France and Turkey, have asked Saudi Arabia to provide all the facts.

Turkish President, Tayyip Erdogan, said he was going to publish information about the investigation in a speech on Tuesday.

Any signs of instability in Saudi Arabia, a major oil producer and major investor in the financial markets, could have far-reaching repercussions.

"Saudi Arabia is involved in many major investment projects. We could now see some of them stranded for this reason, "said an officer of a Japanese asset management company.

In Europe, Italy on Monday told the European Commission that it was sticking to the contested budget plans for 2019, in defiance of EU budget rules.

The European Commission will decide on its response on Tuesday.

The euro slipped 0.2% to $ 1.1440, closing on its lowest level of October 1.00, the lowest since October 14, its lowest level since mid-August.

Although Italian bond prices rose after Moody's did not take a negative outlook as feared by the market, yields remained high, as 10-year bond yields exceeded German benchmarks by more than 3 percentage points. .

(Chart: Italian bonds – tmsnrt.rs/2OKdMsX)

The pound lost 0.2% to 1.2940 dollars, barely exceeding this month's low of 1.2922 dollar, fearing the Irish border issue and disagreements between the conservatives in power over the Brexit could see the Prime Minister Theresa May face a serious challenge to management.

The yen gained 0.4% on a risk-free mood at 112.42 for a dollar.

The yuan has changed little, but was close to Monday's low of 21 at 6.9445 for a dollar in onshore trade, but China will continue a more flexible monetary policy to cope with pressure from the president. American Donald Trump on customs duties.

Chinese equities also weakened after two days of strong growth following indications from Chinese officials, including Deputy Prime Minister Liu He, to large investors to support the decline in the stock market.

"Any incentive on the part of China should not be seen as an impulse, but as a buffer against the slowdown of the economy in the face of external headwinds," said DBS analysts in Singapore. "This reality has been better reflected in the Chinese yuan, which has continued to degrade against the central parity in the onshore and offshore markets."

Oil prices plummeted after Saudi Arabia pledged to play a "responsible role" in energy markets, although there is still concern over US sanctions on exports of Iranian crude oil starting next month.

Saudi Arabia has pledged to maintain market supplies despite its growing isolation from Khashoggi's murder, easing Riyadh's fear of oil production as a diplomatic weapon.

Brent crude futures in the first month were $ 79.51 per barrel, down 0.4%.

The WTI futures price (West Texas Intermediate) was $ 69.12 per barrel, down 0.35%.