By Wayne Cole and Nichola Saminather
Asian share markets advanced on Monday after a lackluster start, defying a dive on Wall Street, and the price of Brent crude threatened to plumb lows last seen in 2004 on renewed worries over a global oil glut.
Brent crude prices LCOc1, which touched a seven-year low of $36.32 overnight, were trading at $36.47 at 0245 GMT as production around the world remained at or near record highs, and a strong dollar following last week’s U.S. rate increases weighed on demand.
A break of $36.20 would take it to ground last trod in 2004. U.S. crude CLc1 lost 25 cents to $34.48 a barrel, close to Friday’s 2015 lows.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS climbed 0.1 percent amid a general lack of investor interest in a holiday-heavy week.
“As we head into the final two weeks of the year, the limited year-end liquidity will be something to keep a watch on,” Bernard Aw, market strategist at IG in Singapore, wrote in a note.
“Today, we have not much in the way of market-moving data for Asia, so market players will likely be sitting on the sidelines and trying to search for clarity.”
Australia’s main index eased 0.3 percent, and Japan’s Nikkei .N225 extended losses from Friday to drop 1.7 percent.
The market took a hit late Friday after the Bank of Japan announced some changes to its massive stimulus program but stopped short of expanding the net amount of assets it buys, disappointing some who had hoped for a more aggressive move.
That in turn sent the yen broadly higher and caused some wild swings against the dollar. The dollar was down at 121.14 yen JPY= after touching 123.58 on Friday.
The euro was little changed at $1.0866 EUR=, while the dollar held steady against a basket of currencies .DXY amid very light trade.
Wall Street also had a volatile end to the week with the expiration of stock and index options contracts generating heavy trading volume.
The Dow .DJI ended Friday down 2.1 percent, while the S&P 500 .SPX lost 1.78 percent and the Nasdaq .IXIC 1.59 percent. For the week, the Dow fell 0.8 percent, the S&P 500 0.3 percent and the Nasdaq 0.2 percent.
The flight from stocks was a boon for safe-haven bonds. Longer-dated Treasuries have been particularly popular as investors wager the Federal Reserve is well ahead of the curve on inflation after last week’s rate hike.
Gold also benefited from the weakness in equity markets. Retaining sharp gains from the previous trading session helped the metal recoup some losses from last week’s U.S. interest rate hike.
Spot gold XAU= climbed to 1,068.46, building on the 1.4 percent gain seen in the previous session.
Other commodities however didn’t fare as well. London copper edged back as weak demand outweighed news that China’s smelters are considering deeper production cuts.
Three-month copper slipped 0.3 percent to $4,673 a tonne, hovering near the 6 1/2 year lows seen in November.
The global background is one of disinflation given the weakness in oil and other commodity prices and the mounting spare capacity in major exporters such as China.
Inflation expectations for five years ahead USIL5YF5Y=R have taken a marked turn lower this month, dropping to 2.11 percent from a high of 2.24 percent.
The resulting rally in longer-dated Treasuries has flattened the yield curve with the gap between two-year US2YT=RR and 10-year paper US10YT=RR shrinking to 123 basis points, the smallest since early February.
A flatter curve is bad news for bank profits since they essentially make money from borrowing short and lending long, and could be one reason U.S. bank stocks fell hard late last week. Financial stocks .SPSY were the worst-performing S&P sector on Friday.
(Reporting by Wayne Cole and Nichola Saminather; Editing by Eric Meijer)