Asia stocks sway before U.S. jobs report, dollar nurses losses

A man walks in front of a screen showing today's movements of Nikkei share average outside a brokerage in Tokyo, Japan, June 2, 2016.  REUTERS/Issei Kato

Asian stock markets wobbled and the dollar was on the defensive on Friday as investors awaited U.S. job data later in the day which could give clues on whether the Federal Reserve will raise interest rates as soon as this month.

Spreadbetters expected Britain’s FTSE .FTSE, Germany’s DAX .GDAXI and France’s CAC .FCHI to open a touch higher as caution prevailed.

The dollar, which was bullish much of the week, nursed losses after downbeat U.S. manufacturing data tempered recent optimism on the U.S. economy that had revived expectations for a near-term rate hike by the Fed.

A report from the Institute of Supply Management (ISM) on Thursday showed U.S. factory activity contracted for the first time in six months in August, as new orders and production tumbled. The ISM index was 49.4.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was barely changed, spending the day swaying in and out of the red.

Shanghai .SSEC fell 0.2 percent while South Korea’s Kospi .KS11 eked out a 0.3 percent gain. Australian stocks lost 0.8 percent and Japan’s Nikkei .N225 was down 0.1 percent.

“Some market participants had bet the Fed may raise U.S. rates as early as this month, but because of the weak ISM data and poor U.S. auto sales, such expectations seemed to have changed,” said Hikaru Sato, a senior technical analyst at Daiwa Securities.

“The U.S. is moving towards tightening, and that direction is the same, but the dollar-yen moves also show that people stepped back from expectations for an imminent hike.”

Asian equity markets took few cues from overnight moves on Wall Street, where stocks were flat with gains in the tech sector offsetting sluggish U.S. factory activity data and lower oil prices. [.N]

The markets will look to Friday’s non-farm payrolls to see if the Fed can risk raising rates this month or later this year. Economists polled by Reuters expect the U.S. economy to have added about 180,000 jobs in August. ECONUS

“While the US manufacturing ISM did undershoot expectations by quite a margin, it is worth remembering that the Fed hiked last year when the ISM manufacturing was at 48.0 and had been sub-50 for three consecutive months,” wrote Sharon Zellner, a senior strategist at ANZ.

“There is therefore potential for markets to whipsaw should we see robust U.S. jobs data tonight, going into the U.S. Labor Day holiday weekend.”

The dollar was nearly flat at 103.355 yen JPY= after coming down from a one-month high of 104.00 overnight.

The euro traded little changed at $1.1198 EUR= after bouncing about 0.3 percent on Thursday. The common currency was at a three-week low of $1.1123 earlier in the week.

The greenback had surged against its peers following a relatively hawkish speech by Fed Chair Janet Yellen last Friday, which raised expectations the U.S. central bank was moving closer to a hike.

Sterling inched up 0.1 percent to $1.3283 GBP=D4 after jumping 1 percent overnight on purchasing managers’ index (PMI) data showing the British manufacturing sector staged one of its sharpest rebounds on record in August.

The post-Brexit surprise boosted the pound as it could prompt the Bank of England to rethink the need to cut interest rates again if other surveys confirm the trend.

Commodities like oil and gold rebounded on the weaker dollar, which favors non-U.S. buyers of greenback-denominated commodities.

U.S. crude CLc1 was up 0.6 percent at $43.41 a barrel after sliding 3.4 percent overnight to a three-week low as a growing glut from U.S. crude stockpiles soured market sentiment. Brent LCOc1 rose 0.6 percent to $45.73 a barrel after shedding more than 3 percent on Thursday.

Spot gold XAU= was steady at $1,312.70 an ounce, having rebounding from a two-month trough of $1,301.91 the previous day.

Gold has been dogged by the prospect of higher U.S. interest rates which would diminish the appeal of the non-yielding metal.

Indian wheat supplies tight, may boost low global prices

A farmer standing on a plastic drum winnows wheat in a field on the outskirts of Ahmedabad, India, March 29, 2016. REUTERS/Amit Dave/Files

Wheat traders and industry representatives in India expect the country to step up international purchases significantly over the coming months, providing a potential boost to global prices languishing near 10-year lows.

Production in the last two years has fallen well below the peak of 2014/15, reducing stocks to the lowest level in nearly a decade and pushing domestic prices close to record highs. Some traders expect them to climb still further this year.

India has already bought about 600,000 tonnes of wheat in 2016, the most in nine years, but traders expect the government to reduce or even abolish the 25 percent import tariff to make imports cheaper and ease a domestic supply squeeze.

“The supply situation is getting very serious,” said Veena Sharma, secretary of the Roller Flour Millers Federation of India, the country’s main wheat industry body.

“A review of the import policy may be a viable and rational option to bridge the gap between demand and supply in the domestic market. There is hardly any wheat available in the open market; production is much lower than the number the government is citing.”

Ramped up imports by the world’s second biggest wheat producing and consuming nation could help support global prices, which have fallen this week amid a projected rise in world stocks to a record 252.8 million tonnes.

India rarely enters the global market beyond buying a few hundred thousands tonnes annually.

The last time it bought more was in 2006, when surprise purchases of close to 7 million tonnes, combined with production problems elsewhere, helped fuel a near 50 percent rally in global prices.

The Food Ministry declined official comment, but a senior government source said there was no cause for panic.

“Although we’re keeping an eye on the situation, we don’t see any shortage at the moment. At the same time, we’ll encourage the private trade and flour millers to import as much as they can,” said the source, who declined to be named because he was not authorised to speak to the press.

“In terms of various options available to us, we can always abolish or lower the import tax. Please remember that there’s no need to worry, as the world has plenty of wheat.”

PRICE SPREAD WIDENS

Trade and industry experts said India was likely to import large volumes.

“In my view, India will have to import at least 4 million tonnes of wheat. A broad estimate suggests our imports will hover around 5 or 6 million tonnes,” said Tejinder Narang, a veteran New-Delhi industry expert.

In a sign of tightening availability, authorities last month reduced the allocation of wheat each flour mill can buy from the government’s open market sales scheme to 500 tonnes from 5,000.

It was subsequently raised to 2,000 tonnes, following a protest from millers.

Domestic prices are strong and trading near record highs set in June. The spread between Indian and global benchmark U.S. prices has widened to an all-time peak.

India’s farm ministry in August pegged 2015/16 wheat output at 93.50 million tonnes, up from 86.53 million tonnes a year ago, but most traders estimate production at about 84 million tonnes.

India’s state wheat reserves, which on Aug. 1 stood at 26.9 million tonnes, are falling rapidly, and traders estimate a drawdown of 2.5-3 million tonnes a month up from the usual 1.5-2 million tonnes.

“It will be difficult to maintain buffer stock levels,” said a trader based in southern India. “The talk among traders is India will be left with (stocks of) 5-6 million tonnes by April.”

India’s minimum buffer wheat requirement, set in 2010/11, is 7.5 million tonnes on April 1, ahead of the arrival of the new crop.

Wheat consumption is estimated to rise to 93.1 million tonnes in 2016/17, up around 11 million tonnes on 2010/11 levels, U.S. Department of Agriculture data show.

Although traders said increased Indian purchases were unlikely to spark a price rally on the scale of that in 2006, with global stocks so plentiful, they could prove a boon to exporters such as Australia.

Australia, the world’s fourth largest exporter, is on track to produce a near-record crop of 28 million tonnes, and so far overseas sales have been disappointing.

“India likes Australian wheat … If the tax gets removed, Australian wheat exports will go into India in reasonable volumes,” said James Foulsham, Wheat Trading Manager at CBH Group, Australia’s largest grain exporter.