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Asia markets mixed, dollar slips as traders await Yellen's speech

CNBC logo CNBC 23-08-2016 Saheli Roy Choudhury

Asia markets were mixed on Tuesday morning, with Japanese shares edging down as the yen inched closer to the key 100 level against the dollar. 

The Nikkei 225 (.N225) was down 0.17 percent, while the Topix (.SPTPXN) index fell 0.22 percent. The Japanese yen (OSEJPY=) strengthened against the dollar, with the pair trading at 100.25 as of 9:43 a.m. HK/SIN, compared with levels near 100.76 on Monday afternoon local time.

Yen strength saw export stocks under pressure, with Toyota (7203.T-JP) off 0.82 percent, Nissan (7201.T-JP) down 1.04 percent and Honda (7267.T-JP) declining by 2.2 percent. A stronger yen is usually a negative for exporters as it reduces their overseas profits when converted back into local currency.

Across the Korean Strait, the Kospi (.KS11) was up 0.25 percent. Australian shares also advanced, with the benchmark ASX 200 (.AXJO) up 0.89 percent as the heavily-weighted financials sector gained nearly 1 percent. New Zealand shares were relatively flat, with the NZX 50 (.NZ50C) trading at 7,465.11.

In Hong Kong, the Hang Seng index (.HSI) was down 0.27 percent. Chinese mainland markets were modestly higher, with the Shanghai (.SSEC) composite up 0.13 percent and the Shenzhen (.DJSZ) composite adding 0.11 percent.

Analysts pointed out that market was likely playing wait-and-see ahead of a speech from Federal Reserve chair Janet Yellen on Friday at the Federal Reserve Bank of Kansas City's Monetary Policy Symposium at Jackson Hole, Wyoming on Friday. The annual Fed symposium has sometimes been used by Fed chairs to make important policy pronouncements. 

"It's still early days yet for the Jackson Hole conference ... but the markets seem to be already discounting the possibility that Yellen may look to talk up a September rate hike," said Angus Nicholson, a market analyst at spreadbettor IG.

In the currency market, the dollar index (=USD), which measures the greenback against a basket of currencies, pulled back from levels near 94.905 on Monday afternoon Asia time to 94.512 in morning trade on Tuesday.

The Indian rupee (INR=) traded at 67.17 against the dollar, after weakening from levels near 66.80 late last week when India appointed Urjit Patel to take over the helm as governor of the Reserve Bank of India (RBI) from his predecessor Raghuram Rajan. Patel was previously a deputy governor at the RBI.

Analysts expected to see further rebound in the dollar/rupee pair, in tandem with movements of the dollar against other Asian currencies.

ANZ Research's Irene Cheung and Rini Sen said in a note that "a firmer dollar on the back of an expected hike by the Federal Reserve this year, coupled with some unwinding of RBI rate cut expectations in India's asset markets, will likely see a rebound in dollar/rupee."

In other central bank news, the Reserve Bank of New Zealand said Tuesday its current interest rate track involves further rate cuts, possibly by another 35 basis points, to balance a number of risks weighing on the New Zealand economy while propping up inflation closer to the midpoint of its 1 to 3 percent target range.

The remarks were part of a speech made by RBNZ Governor Graeme Wheeler, who was addressing business people in Dunedin. Earlier this month, the central bank cut its official cash rate by 25 basis points to 2 percent.

Goldman Sachs analysts in a note on Tuesday that the comments from the central bank were consistent with Goldman's forecast of a gradual reduction in the official cash rate to 1.50 percent by February 2017, with the RBNZ "to remain highly sensitive to news flow on inflation expectations and the NZD in the interim."

The New Zealand dollar (NZD=) reacted positively to the speech by strengthening against the greenback, trading up at $0.7307, compared with earlier lows of $0.7257.

The rally in oil prices snapped overnight, with prices closing down more than 3 percent on further signs of oversupply in the global energy market.

Reuters reported China's July diesel and gasoline exports soared 181.8 percent and 145.2 percent, respectively, on-year, which put pressure on refined product margins. In the U.S., drillers added 10 oil rigs in the week to August 19, marking eight straight weeks of rig additions, while Iraq said it plans to increase its exports of crude oil, said Reuters.

During Asian hours, oil prices retreated further, with the new October forward-month contract for U.S. crude futures down 1.27 percent to $46.81, after falling 3.6 percent overnight. Global benchmark Brent futures dropped 1.06 percent to $48.64 a barrel, following a 3.4 percent decline on Monday.

Over the past two weeks, oil prices rallied amid speculation that the world's leading suppliers might take some form of action to address low prices. However, analysts have previously said the possibility of suppliers, particularly members of OPEC, agreeing on a deal was limited.

In company news, shares of Japanese semiconductor maker Renesas Electronics (6723.T-JP) dropped 4.20 percent on Tuesday, following a Reuters report, citing sources familiar with the matter, that said the company was nearing an expected $3 billion acquisition of U.S. chipmaker Intersil (ISIL).

Australian energy company Oil Search (OSH-AU) announced its net profit after tax for the first half plunged 89 percent to $25.6 million, from $227.5 million in the year-earlier period, as it was hit by the prolonged slump in global oil and liquefied natural gas prices. Total revenue declined 33 percent on-year to $580.8 million in first half of 2016.

Oil Search shares fell 1.01 percent. Other energy plays across the region were mostly lower amid falling oil prices, with Woodside Petroleum (WPL-AU) off 0.65 percent and Inpex (1605.T-JP) losing 1.95 percent.

In the U.S., the Dow Jones industrial average (.DJI) closed 23.15 points, or 0.12 percent, lower at 18,529.42. The S&P 500 (.SPX) index slipped 1.23 points, or 0.06 percent, to end at 2,182.64, while the Nasdaq (.IXIC) gained 6.22 points, or 0.12 percent, to 5,244.60.

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