Asian Stocks Swing After China Inflation Slumps; Oil Slides

(Bloomberg) — Chinese stocks climbed with the Australian dollar amid speculation that the slowest inflation in five years allows room for further stimulus. Oil fell for the first time in four days and gold rallied.

The Shanghai Composite Index climbed 0.8 percent by 1:15 p.m. in Tokyo, while a Hong Kong gauge of mainland companies added 0.5 percent. The MSCI Asia Pacific Index was little changed and Standard & Poor’s 500 Index futures gained 0.1 percent. U.S. crude declined 1.3 percent after rallying more than 9 percent the past three days. The Aussie added 0.3 percent and South Korea’s won climbed 0.4 percent, leading gains against the U.S. dollar. Gold advanced 0.3 percent.

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China’s slowing inflation and a 35th straight contraction in factory gate prices give policy makers room undertake extra stimulus after cutting interest rates in November and reducing banks’ reserve requirements last week. Oil’s recent rally is tapering amid forecasts for continued supply growth. A gauge of global equities fell to a one-week low yesterday as Greek leaders vowed to abandon austerity and diplomats sought a framework for talks over the conflict in Ukraine.

China’s price data “smells of deflation,” said Michael Every, the Hong Kong-based head of Asia Financial Markets research at Rabobank NA. “China will have to respond in kind to offset that threat. The Greece situation is crucial and risks are downplayed by the market so far.”

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Hong Kong’s Hang Seng Index fluctuated while the Hang Seng China Enterprises Index advanced for the first time in three days.

Kiwi Stronger

China’s consumer prices rose 0.8 percent in January while producer prices slid 4.3 percent, more than the 3.8 percent drop forecast by economists, amid slumping commodity prices and weak domestic demand.

Australia’s S&P/ASX 200 Index slid 0.4 percent, with all but one of the gauge’s industry groups declining. The Aussie bought 78.28 U.S. cents, while the New Zealand dollar added 0.3 percent to 74.32 U.S. cents. China is the biggest trading partner for both South Pacific countries.

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Japan’s Topix fell 0.2 percent, retreating for the first time in three days as the yen climbed 0.2 percent to 118.46 per dollar. The currency added 0.4 percent on Monday after plunging 1.3 percent Friday after a stronger-than-estimated U.S. jobs report. The yield on 10-year Japanese bonds rose 3 1/2 basis points to 0.39 percent today.

The Bloomberg Dollar Spot Index was 0.1 percent lower, falling for a second day after closing near its highest in at least 10 years on Friday. South Korea’s won climbed to 1,090.28 per dollar, while the euro was little changed at $ 1.1337.

Volatility Rises

The Chicago Board Options Exchange Volatility Index, a gauge of expected swings in U.S. stock prices known as the VIX, climbed 7.3 percent on Monday to 18.55, its highest level since Feb. 2. The gauge averaged 14.18 last year. A similar measure for Japanese equities rose 2 percent in a second day of gains on Tuesday.

The Stoxx Europe 600 Index slid 0.7 percent on Monday after Greek Prime Minister Alexis Tsipras vowed to negotiate an end to austerity, while European leaders urged him to pare back his ambitions. Greek Finance Minister Yanis Varoufakis faces his 18 euro-area counterparts on Feb. 11 at an emergency meeting in Brussels.

Greece’s three-year bond yields increased to the highest level since the nation’s debt was restructured in 2012. The country will seek about 10 billion euros ($ 11.3 billion) in short-term financing as it tries to stave off a funding crunch while pushing creditors to ease austerity demands, said a government official who asked not to be named because the negotiations are confidential.

$ 20 Oil?

West Texas Intermediate crude dropped to $ 52.20 a barrel after jumping 2.3 percent on Monday as OPEC cut its U.S. output forecast. American crude inventories expanded for a fifth week, according to analysts surveyed by Bloomberg before data due Wednesday.

Brent crude slipped 1.2 percent, trading at $ 57.63 a barrel. Oil may drop more than 50 percent to “the $ 20 range” by the start of the second quarter as oversupply fills storage tanks close to capacity, according to Citigroup Inc. Signs of a slowdown in U.S. drilling don’t mean the crude glut will be eliminated, Edward Morse, Citigroup’s global head of commodity research, said in a report e-mailed Monday.

“If we want to see the price back to $ 80 or $ 90 we need to see a good amount of current production taken out of the market, and that’s not happening,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone. “We’re certainly not expecting any sustained rally until later in the year, and that will require someone to cut output.”

Gold Coins

Saudi Arabia, the world’s largest oil exporter, had the outlook on its credit rating cut to negative by Standard & Poor’s on Monday as the lower crude price dims the nation’s growth prospects.

Gold for immediate delivery climbed to $ 1,242.91 an ounce. There’s been a “noticeable increase” in Greek demand for gold coins amid the country’s political turmoil, said Lisa Elward, head of bullion sales at the U.K. Royal Mint.

Discussions over the situation in Ukraine resumed Monday, with the aim to work toward a summit for the leaders of Germany, France, Russia and Ukraine in Minsk, Belarus, set for Feb. 11. Russian President Vladimir Putin said all sides must first agree on their positions before talks can take place. Ukraine said on Monday that 1,500 Russian troops crossed the border at the weekend to help insurgents in the country’s east.

To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Kyoungwha Kim in Hong Kong at kkim19@bloomberg.net

To contact the editors responsible for this story: Nick Gentle at ngentle2@bloomberg.net Michael Patterson

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