Oil prices jumped more than 3.0% to three-week highs as geopolitical tensions in the Middle East raise questions about supply reliability. Saudi Arabia has severed its ties with Iran and asked its diplomatic envoy to quit the kingdom after protesters in Iran stormed the Saudi embassy in response to executing the Shia cleric Nimr Al-Nimr. U.S. West Texas Intermediary (WTI) crude futures rose to as high as $38.23, before trading last at $37.76 a barrel, up about 2.0% for the day. Brent crude futures hit a high of $38.50, before settling at $38.14 a barrel, up 2.31%, and firmly regaining its premium over U.S. crude.
From China, Caixin manufacturing PMI showed contraction in the vital sector for the tenth consecutive month; coming at 48.2, below the mark 50 which separates contraction from growth. The bad data led to a hurricane of selling in Asian shares, with China's CSI300 index plunging 4.0%. Japan's Nikkei hit a ten-week low at 18,465, down a heavy 3.0% for the day. In other bad news, South Korea's exports fell in December for the twelfth straight month, marking the worst year since the financial crisis. Korea's KOSPI index tumbled to a three-week low with a 1.60% loss. Australia's S&P/ASX 200 index gave up half a percent, while India's Nifty slid 1.0%.
The slew of weak data combined with tensions in the Middle East drove investors toward the save-haven yen, which jumped to a ten-week high against the dollar at 119.52, up 0.60%. Yen hit its highest in nearly nine months against sterling at 176.11, up a similar 0.60%. It rose to a month-high against the euro at 129.99.
Dollar reversed all of its gain, with its index down 0.20% at 98.60 after touching a two-week high earlier in the session at 99.04. Dollar rose to its highest in about 9 months against sterling at 1.4691, before erasing its gains and trading flat at 1.4735. It was down 0.22% against the euro at 1.0879, after advancing to a two-week high earlier at 1.0826.
A slew of data is awaited today; from the UK, Manufacturing PMI for December is forecast at 52.8, a shade higher than November's 52.7, and a strong indicator of continuing growth despite all the global headwinds.
It's another story from the U.S. however, where Manufacturing PMI is expected to show another month of contraction at 49.1, following November's 48.6, and which would be negative for the dollar.