Stocks in Asia took a hit, in the face of dropping oil prices and the anticipated U.S. rate increase. Oil prices are at their lowest in seven years, something that has markets the world over jittery.
Ripples spread across the Far East
On Japan’s Nikkei, the .N225 dropped by 2.4 percent as energy company shares took a beating in the face of slipping commodity prices. In Korea too, the effects were felt as the .KS11 went down by 1 percent. Australia saw a similar dip while in Shanghai a marginal drop of 0.2 percent was experienced by the .SSEC. The .MIAPJ0000PUS, considered the most all encompassing index of shares in the Asia-Pac region (not including Japan) slipped 1.4 percent to hit a 2.5 month low.
China’s fragility question
A question that emerges from time to time reared its head again, as The People's Bank of China let the yuan continue to drop lower. This latest slide marks the lowest yuan/dollar midpoint in 4 and a half years. This steady depreciation that China doesn’t appear to be attempting to stem this time, has people questioning how strong the dragon really is. There has also been a move in recent time to look at a trade weighted currency basket approach tracking to managing the yuan - something earlier confined to the US dollar.
Interestingly, some good numbers emerged from the country over the weekend, but investors weren’t biting. Retail sales have been growing at fast clip, with annual rate of 11.2 percent, another high for 2015. The latest factory output growth numbers from China for November showed an increase to hit their highest levels in five months.
What lies ahead
According to the International Energy Agency, the world needs to steel itself for 2016, as the oversupply of crude on a global level could continue to increase, something that will see oil prices spiral down further.
In the short run however, what has everyone worried is how well stocks will be able to cope with a US rate hike. This seems like an inevitability, with the announcement likely to be made by the Federal Reserve after their policy review scheduled for this Wednesday evening. According to market observers, if the dollar, oil prices and US shares see a rebound, then things could stabilize and start to look up. If not, one may need to buckle down for another spate of selling.