Oil extends rout below US$31 as Asian stocks pare gains, STI down 0.1%

Pedestrians walk past an electronic stock board outside a securities firm in Tokyo, Japan, on Jan 7, 2016.
Pedestrians walk past an electronic stock board outside a securities firm in Tokyo, Japan, on Jan 7, 2016. PHOTO: BLOOMBERG

WELLINGTON/SINGAPORE (BLOOMBERG) - Crude fell below US$31 a barrel in New York on Tuesday (Jan 12), while Asian stocks outside of Japan erased gains and the yuan jumped in Hong Kong.

Oil dropped for a seventh day after closing at a 12-year low on Monday. Japanese shares sank as they traded for the first time this week, while the yen climbed 0.2 per cent. The Chinese currency traded in Hong Kong's free market rallied as much as 0.7 per cent, erasing its discount to the onshore rate. A Bloomberg gauge of dollar strength was near its highest level since at least 2005 and US index futures retreated.

China's central bank intervened to close the discount to the onshore rate and made it more expensive to borrow and short the currency.

The yuan funding squeeze "makes short-selling the currency very expensive overseas," said Eddie Cheung, a Hong Kong-based currency strategist at Standard Chartered. "The onshore- offshore gap will remain narrow in the near-term, given the PBOC's recent measures to close the difference, but may widen again as depreciation pressure persists."

The MSCI's Asia Pacific excluding Japan measure slipped 0.1 per cent, after gaining as much as 0.8 per cent earlier. The gauge dropped 2 per cent last session to its lowest level in more than four years.

SIngapore's Straits Times Index was down 0.14 per cent at 2,704.99 as at 1:19 pm.

Australia's S&P/ASX 200 Index fell 0.4 per cent to head for its longest losing streak since 2010. BHP Billiton, the world's biggest mining company, sank 3 per cent to an 11-year low.

The Shanghai Composite Index added 0.6 per cent to 3,034.20 at 1:11 pm local time, after losing as much as 1.3 per cent, as policy makers intensified efforts to stabilize the yuan. The Chinese currency rose to a one-week high in offshore trading, almost erasing its discount to the onshore rate, after the central bank steadied the currency's daily fixings and intervened to support the exchange rate.

The Hang Seng Index gained from its lowest close since 2013. The Philippine benchmark equity index rallied 1.6 per cent after entering a bear market on Monday.

"Another heavy selloff yesterday driven by China concerns means there is the potential for a short-term bounce today," Angus Nicholson, a market analyst in Melbourne at IG Ltd., said in an e-mail to clients. "There has been a bit of a rally coming into US markets just before the close. The big question is whether this is only a 'dead-cat bounce' and traders may just be looking to sell into the rally."

S&P 500 Index futures dropped 0.4 per cent, after the index ended last session up 0.1 per cent amid volatile trading conditions. The Dow Jones Industrial Average rose 0.3 per cent Monday to 16,398.57, advancing for the first time in four days.

The yuan traded in Hong Kong's free market rose as much as 0.7 per cent, temporarily erasing a gap with the Shanghai exchange rate that widened to a record 2.9 per cent last week. The cost of borrowing China's currency overnight in Hong Kong's interbank market jumped by 53 percentage points to 66.82 percent, more than five times the previous record reached on Monday.

The yen rose to 117.52 per US dollar. An indicator of future direction for the yen shows the currency is poised to decline as it has been overbought for five consecutive days, the longest period since 2011.

Oil slid 1.5 per cent to US$30.95 a barrel after falling on Monday to the lowest level since December 2003. Contracts on Brent crude dropped 1.5 per cent to US$31.08 in London.