Asian stocks fall after weak US data, crude oil buoyant

TOKYO (Reuters): Asian stocks fell on Friday after weak US retail sales figures raised fresh doubts about the strength of the world’s largest economy, offsetting optimism towards trade talks between the United States and China.

Also casting a shadow, the White House said US President Donald Trump will declare a national emergency to try to obtain funds for his promised US-Mexico border wall, drawing immediate criticism from Democrats.

A wait-and see mood ensued for markets ahead of the results of a meeting on Friday between the Trump administration’s top two negotiators and Chinese President Xi Jinping in Beijing.

There has been no decision to extend a 1 March deadline for a deal, White House economic adviser Larry Kudlow said on Thursday.

MSCI’s broadest index of Asia-Pacific shares outside Japan, which had scaled a four-month high midweek on factors including expectations for reduced US-China trade tensions, was down 0.8%.

The Shanghai Composite Index lost 0.6 percent. Japan’s Nikkei dropped 1.2% and South Korea’s KOSPI shed 1.5%.

In the United States, the S&P 500 lost about 0.3% on Thursday, a day after it hit a 10-week high on rising hopes that Washington and Beijing could reach a trade deal.

US retail sales tumbled 1.2% in December, recording their biggest drop since September 2009 as receipts fell across the board.

The shockingly weak report led to economic growth estimates for the fourth-quarter being cut to below a 2% annualised rate, with the Atlanta Fed forecasting a 1.5% growth, much below its previous forecast of 2.7% about a week ago.

Kazushige Kaida, head of foreign exchange at State Street in Tokyo, said he was “very surprised” by the US retail sales data.

“The extraordinary weakness, however, appears to be owing in part to the government shutdown, though the exact extent of its impact is not clear,” he said.

“It would be premature to think the US economy has lost steam completely. We have to wait for figures in the next couple of months,” Kaida said.

The collapse in retail sales came along with data showing an unexpected increase in the number of Americans filing claims for unemployment benefits last week.

The closely-watched four-week average of the volatile data rose to the highest level in more than a year.

That prompted Fed fund futures to price in a small chance, about 15%, of a rate cut this year.

US Federal Reserve Governor Lael Brainard said the central bank should stop paring its balance sheet by the end of this year.

Daisuke Uno, chief strategist at Sumitomo Mitsui Bank, said the Fed “appears to be laying the ground work to end its balance sheet reduction early”.

The 10-year US Treasuries yield fell to 2.653%, wiping out most of their rise this week.

In the currency market, the weak US data dented the dollar.

The US currency fetched 110.32 yen, stepping back from Thursday’s seven-week peak of 111.13.

The dollar’s weakness saved the euro from testing its 2018 low of $1.1216. The common currency stood at $1.1289 after having fallen to $1.1248 on Thursday following economic data showing Germany’s economy stalled in the fourth quarter.

The British pound traded a shade lower at $1.2794 following a descent to a near one-month low of $1.2773 overnight after Prime Minister Theresa May lost a symbolic Brexit vote in parliament, weakening her hand as she seeks to renegotiate her withdrawal agreement with Brussels.

Oil prices soared as top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper output cut.

Brent crude futures stretched an overnight rally rose to as high as $65.10 per barrel, their highest level in nearly three months. The contracts have gained nearly 5% this week.

“Brent should average 70 dollars per barrel in 2019, helped by voluntary (Saudi Arabia, Kuwait, UAE) and involuntary (Venezuela, Iran) declines in OPEC supply,” wrote commodity strategists at Bank of America Merrill Lynch.

Oil exports from Venezuela and Iran have been the target of US sanctions.

US crude futures rose 0.5% to $54.68 per barrel and were headed for a weekly gain of roughly 4%.