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Asian shares slipped on Monday as worries over Sino-U.S. trade disputes, a possible slowdown in the Chinese economy and higher U.S. borrowing costs tempered optimism despite a rebound in global equities late last week.
Spreadbetters expected European stocks to open mixed, with Britain's FTSE edging up 0.15 percent, Germany's DAX dipping 0.1 percent and France's CAC losing 0.3 percent.
Not helping the mood, oil prices jumped and Saudi Arabian shares tumbled on rising diplomatic tensions between Riyadh and the West after the monarchy warned against threats to punish it over disappearance of a journalist critical of its policies.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent while Shanghai shares were down 0.75 percent.
Japan's Nikkei slumped 1.8 percent, with carmaker shares hitting 13-month lows after Washington said it would seek a provision about currency manipulation in future trade deals with Japan.
MSCI's broadest gauge of the world's stock markets was off 0.25 percent after a sizable 3.87 percent decline last week - its biggest since March - to a one-year nadir.
The market shakeout has been blamed on a series of factors, including worries about the impact of a U.S.-China trade war, a spike in U.S. bond yields and caution ahead of the earnings season.
China's top central banker on Saturday pledged to keep the yuan currency's value "broadly stable," a sign that Beijing may be trying to prevent a bruising trade dispute with the United States from spilling over into a currency war.People's Bank of China Governor Yi Gang's statement at the International Monetary Fund and World Bank annual meetings in Bali came as U.S. Treasury Secretary Steven Mnuchin said Chinese officials had told him that further yuan depreciation was not in China's interest.Mnuchin has reiterated his concerns that a major drop in the yuan's value this year against the dollar could be part of an effort to gain a trade advantage for Chinese exports or to offset the impact of U.S. tariffs.The yuan has fallen more than 8 percent against the dollar since the end of April to about 6.91 on Friday, close to the psychologically important 7.0 level not seen in a decade."China will continue to let the market play a decisive role in the formation of the RMB exchange rate," Yi said in an International Monetary and Financial Committee (IMFC) statement posted on Saturday. "We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions."His statement echoes currency pledges made in a communique issued by the IMF's member countries on Saturday to step up their trade dialogue as rising tariff frictions, and higher borrowing costs threaten to knock global growth.In the statement from the IMF's steering committee, the member countries also agreed to debate ways to improve the World Trade Organization so it can better address trade disputes."We acknowledge that free, fair, and mutually beneficial goods and services trade and investment are key engines for growth and job creation," the IMFC said in the statement."We will refrain from competitive devaluations and will not target our exchange rates for competitive purposes," it added.IMF chief says China faces balancing act as it seeks to maintain growthChina exerting 'unprecedented' influence campaign in USRate Hike WorriesOn Thursday, IMF Managing Director Christine Lagarde warned countries against engaging in currency and trade wars, which would hurt global growth as well as "innocent bystander" nations, including emerging markets that supply commoditiesSome of these countries, including Indonesia, the host of the IMF and World Bank meetings, are already struggling to contain capital outflows prompted by higher U.S. interests rates.Fears that rates could spike sharply higher - and the international trade tensions - touched off a searing sell-off in global stock markets over the past week.European Central Bank Governor Mario Draghi warned on Saturday that a "snap back" in rates and a sharp repricing of asset prices were the biggest risks to the economic outlook.Blaming the Sino-U.S. trade dispute, the IMF this week cut global growth forecasts for 2018 and 2019."The recovery is increasingly uneven, and some previously identified risks have partially materialised," the IMFC communique said, referring to threatened tariffs and outflow pressures.The United States and China have slapped tit-for-tat tariffs on hundreds of billions of dollars of each other's goods over the past few months, sparked by U.S. President Donald Trump's demands for sweeping changes to China's intellectual property, industrial subsidy and trade policies.Trump has frequently accused China of cheapening its currency to gain a trade advantage, claims Beijing has consistently rejected. The U.S. Treasury is due to release a key report on currency manipulation next week.Despite reassurances from China's central bank on currency policy, some analysts say yuan weakness will persist, as there is no clear path towards resolving the U.S.-China trade dispute and higher tariff rates loom in January."Clients in China remain unwilling to call a bottom in the yuan," NatWest Markets head of foreign exchange strategy Mansoor Mohi-uddin said in a research note. "This in turn makes us cautious about calling for a peak in the dollar globally."Further Federal Reserve rate hikes are expected to underpin the dollar's strength and increase capital outflow pressures on emerging market economiesBut Bank of Japan Governor Haruhiko Kuroda said the Fed's rate hikes were "basically good" for the world economy, though he was more cautious about escalating trade tensions due to their "rather unusual" scale.China opposes Malaysia's release of 11 Uighur MuslimsJapan's Abe pursues China thaw as US-Beijing ties in deep freezeUS STOCKS-Futures dip ahead of producer price data
China echoes IMF pledges to avoid using currency as trade war tool
Although selling appeared to have abated on Friday, partly after Chinese trade data showed strong growth in September, many investors remained cautious.
"Some people say markets drew comfort from China's exports data. But to me it seems so obvious the numbers were inflated by front-loading ahead of the introduction of tariffs," said Norihiro Fujito, chief investment analyst at Mitsubishi UFJ Morgan Stanley Securities.
Fujito said the trade war is starting to take a toll on growth in China, noting that data released later on Friday showed Chinese auto sales posted the biggest drop in seven years.
Over the weekend, China central bank governor Yi Gang said he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.
Also starting to attract wider attention, Saudi Arabia doubled down on pressure from the West on the disappearance of Jamal Khashoggi, a U.S. resident and Washington Post columnist, after he entered the Saudi consulate in Istanbul on Oct. 2.
U.S. President Donald Trump has threatened "severe punishment" if it turns out Khashoggi was killed while many company executives have cancelled their plans to attend a Saudi investor conference later this month.
Saudi Arabia's stock market plunged on Sunday as investors worried about deteriorating relations with the international community after the disappearance of Saudi journalist Jamal Khashoggi.After nearly two hours of trade the index was down 7.0 percent, its biggest drop since December 2014, when oil prices were crashing. Shares in the region's biggest petrochemical producer, Saudi Basic Industries, tumbled 7.9 percent."It’s the political environment. The market is reacting negatively to sentiment around the Khashoggi case and the political noise around it," said Salah Shamma, head of investment for the region at Franklin Templeton Emerging Markets Equity, a big global fund manager.Shamma noted the fundamental situation of the Saudi economy had not so far been affected.But regional traders said speculation the Khashoggi case might deter some inflows of foreign investment - and that a backlash in the U.S. Congress could lead to U.S. sanctions against some Saudi individuals - had triggered panic selling of stocks by some local investors."It seems that international accounts are punishing the Saudi exchange," a regional broker added.Turkey expects Saudi cooperation on case of missing journalist: FMKhashoggi, a prominent critic of Riyadh and a U.S. resident, disappeared on Oct. 2 after visiting the Saudi consulate in Istanbul. Turkey believes he was deliberately killed inside the building and his body removed. Riyadh has dismissed the claims.U.S. President Donald Trump said on Saturday there would be "severe punishment" for Saudi Arabia if it turned out that Khashoggi was killed in the consulate.Media companies and some technology executives have pulled out of a major Saudi investment conference scheduled for next week in Riyadh because of growing outrage over the disappearance.Other stock markets in the Gulf opened higher on Sunday but began falling as Riyadh plunged, with the Dubai index sinking 1.4 percent.Trump says US would be 'punishing itself' if it halts Saudi arms sales
Saudi stocks plunge 7 pct on Khashoggi fallout; biggest drop since 2014
Investors suspect the latest development could undermine the leadership of Crown Prince Mohammed bin Salman and has the risk of eventually destabilising the oil-rich kingdom.
Saudi Arabia's shares plunged as much as 7 percent on Sunday, and closed down 3.5 percent at their lowest levels since early January.
Oil prices reversed their downtrend since early this month.
Brent crude futures rose 1.3 percent to $81.50 per barrel, bouncing back from Friday's near-three-week low of $79.23.
"Oil prices could rise to $100 on worries about Saudi Arabia," said Kazuhiko Fuji, senior fellow at Research Institute of Economy, Trade and Industry, a think tank affiliated with the Japanese government.
"People had thought the Saudis will make up for fall in Iran's output. If they are starting to use oil as their weapon, that will be a whole new chapter," he said.
Higher oil prices could boost inflation around the world and spark rises in U.S. borrowing costs, which are also seen hurting weak borrowers, especially those in emerging markets.
Oil markets look "adequately supplied for now" after a big production increase in the last six months, but the industry is coming under strain, the West's energy watchdog said on Friday.The International Energy Agency said in its monthly report that the world's spare oil production capacity was down to 2 percent of global demand, with further falls likely."This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy," the Paris-based organisation said.Members of the Organization of the Petroleum Exporting Countries (OPEC) and other exporters such as Russia agreed in June to raise output as the market appeared increasingly tight.The price of global benchmark Brent crude has risen from around $45 a barrel in June 2017 and peaked at over $85 this month on bullish bets by speculators.US senator calls for arms sales halt to Saudi ArabiaOPEC, Russia and others such as U.S. shale companies had increased production sharply since May, the IEA said, raising global output by 1.4 million barrels per day (bpd).Overall, OPEC had boosted production by 735,000 bpd since May as Middle East Gulf producers such as Saudi Arabia and the UAE more than compensated for declining output in Venezuela and Iran, which is facing U.S. sanctions from next month.Supply from Iran during September dropped to a two-and-a-half year low, the IEA said, as customers continued to cut back in the run-up to new sanctions, which start on Nov 4.Iranian output fell to 3.45 million bpd, it said, down 180,000 bpd month-on-month. Iranian oil exports in September fell to 1.63 million bpd, down 800,000 bpd from recent 2Q18 peaks, the agency estimated."The decline may deepen significantly ahead of U.S. sanctions - and subsequently as final cargoes are delivered," said the IEA, which advises major oil consumers on energy policy.But, the outlook for world oil consumption is faltering, the IEA said as it cut its forecast of global oil demand growth by 0.11 million bpd for both this year and next to 1.28 million bpd and 1.36 million bpd respectively."This is due to a weaker economic outlook, trade concerns, higher oil prices," it said.OECD commercial stocks rose by 15.7 million barrels in August to 2.854 billion barrels, their highest level since February, on strong refinery output and liquefied petroleum gas restocking, the IEA said.It added that OECD inventories were likely to have risen by 43 million barrels in the third quarter, the largest quarterly increase in stocks since the first quarter of 2016."The increase in net production from key suppliers since May of approximately 1.4 million bpd, led by Saudi Arabia, and the fact that oil stocks built by 0.5 million bpd in 2Q18 and look likely to have done the same in 3Q18, lends weight to the argument that the oil market is adequately supplied for now," the IEA said. 
World oil market 'adequately supplied for now': IEA
Although the U.S. 10-year yield posted its first major fall in about two months last week on stock market rout, the yield rose a tad on Monday to 3.15 percent.
Investors were also bracing for a European Union summit meeting from Wednesday.
The British pound shed 0.3 percent to $1.3114 after negotiators from the European Union and the UK failed to clinch a Brexit deal ahead of the crucial summit.
The euro traded at $1.1552, down slightly after Chancellor Angela Merkel's Bavarian allies suffered their worst election result since 1950 on Sunday.
On the other hand, the dollar is seen under pressure against the yen after U.S. Treasury Secretary Steven Mnuchin said on Saturday that Washington wants to include a provision to deter currency manipulation in future trade deals, including with Japan.
That raised worried among Japanese policy circles that this would give Washington the right to label as currency manipulation any future foreign exchange market interventions by Tokyo to keep sharp yen rises in check.
The dollar slipped 0.2 percent to 112.00 yen.
Three days before U.S. President Donald Trump took office in January 2017, Chinese President Xi Jinping portrayed Beijing as the champion and defender of globalisation at the Davos World Economic Forum amid rising fears of trade protectionism.A few months later, as Xi launched a forum on China's vast Belt and Road effort, promising to spread Chinese investment and soft power through the world, it appeared his country's global stature was rising.But now the lustre on Beijing's trade and investment story has dulled amid rising U.S. tariffs, higher interest rates and capital flight from emerging markets, all of which threaten to erode global growth.At the International Monetary Fund and World Bank annual meetings on the Indonesian resort island of Bali, some of that sentiment spilled into the open."I think there is a broad view growing in the West that China has in some ways taken advantage of the system," said Charles Dallara, former head of the Institute of International Finance, who attended the meetings. "It reminds me of the view in the West of Japan in the 1980s, very much so."Calls to fix global trading rules are tellingly coming not just from the Trump administration. IMF managing director Christine Lagarde this week laid out what needed to be done."This means looking at the distortionary effects of state subsidies, improving the enforcement of intellectual property rights, and taking steps to ensure effective competition - to avoid the excesses of market-dominant positions," she said at a trade conference during the Bali meetings.Lagarde did not mention China, but all those issues are charges frequently levelled by the Trump administration. Others were less restrained."We absolutely need to address the issue of overcapacities in China. Nobody can say that this is not a problem. This has to be dealt with," European Commissioner for Economic and Financial Affairs Pierre Moscovici said at the same event.U.S. Treasury Secretary Steven Mnuchin struck a more confident tone at the Bali meetings compared with similar gatherings over the last year, when he was the target of near-universal criticism over Trump's tariff plans.Fresh off a deal to revamp the North American Free Trade Agreement with Mexico and Canada, and with trade talks coming soon with the European Union and Japan, the U.S. administration is trying to build a coalition of allies to revamp global trade rules to combat technology transfer and other trade policies it associates with China.Mnuchin said U.S. allies first viewed Trump's trade views as simply protectionist but now have a better understanding of his desire for "free, fair and reciprocal trade.""This is not a coalition to pressure China. This is a coalition of like-minded people who have very similar issues as it relates to China," Mnuchin said.IMF chief defends Powell after Trump says Fed has 'gone crazy'IMF chief says China faces balancing act as it seeks to maintain growthBelt Aand RoadChina is still a major political and economic power, but Chinese officials appeared more on the defensive this week, with the tone of debate at some IMF forums shifting more quickly than Beijing may have expected.Vice finance minister Zou Jiayi, on a World Bank panel on Xi's signature Belt and Road Initiative, found herself fielding questions from other panelists and the audience over debt sustainability, how effectively small countries could negotiate with Beijing, and whether the effort was viable in the midst of a protracted trade war.The debt burdens from the Belt and Road initiative came into sharper focus as Pakistan, a major recipient of Chinese-financed port, rail and road projects, formally sought an IMF bailout program during the Bali meetings.Zou said China was using risk analysis methods from bodies such as the IMF and World Bank, and would supervise the projects' debt more vigorously.But she also said that they are essentially commercial projects and that countries should exercise caution and make their own evaluations of their commercial viability.And she said some of the risks came from a drastic change in external environment, giving an example of an unnamed African country with sound debt levels that sank into crisis after oil prices tanked and its currency fell.David Dollar, a former U.S. Treasury official and a senior fellow at the Brookings Institution who spoke on the panel, said that Belt and Road could reduce trade costs, but that more work needed to be done."For low-income countries, there is really this risk of taking on too much debt even if the projects are very, very good," Dollar said.China's central bank says market to play decisive role in yuan exchange rateChina echoes IMF pledges to avoid using currency as trade war toolIneffective Institutions Some delegates from China at the Bali IMF and World Bank meetings expressed frustration that Beijing's agenda was being bypassed while international institutions had largely been ineffective in deterring Trump's tariff actions."Personally I think unfortunately the G20 hasn't contributed much to reconciliation and coordination of macroeconomic policies across the world," said Xiang Songzuo, deputy director of International Monetary Institute at Renmin University of China, who was a speaker at a sideline event during the meetings in Bali."We wish all these forums including G20, UN, World Bank, IMF, WTO, would become stronger, stronger and more productive in containing all these wrong things - protectionism, unilateralism," Xiang added.The current leaders of the G20, which bills itself as a leading forum that seeks to develop global policies and address the most pressing challenges, conceded that it is effectively sidelined on trade."The G20 can play a role in providing the platform for discussions," said Argentine Treasury Minister Nicolas Dujovne, chairman of this year's G20 finance leaders' meeting. "But the differences that still persist should be resolved by the members that are directly involved in the tensions."Although there are reports that Xi and Trump will meet at the G20 leaders' summit on November, Mnuchin told Reuters that currency issues would be part of trade talks, and that the onus was squarely on China to take concrete steps before trade talks could resume."This can't just be talk; there have to be meaningful commitments to create a rebalanced trading relationship," Mnuchin told reporters on Saturday, adding that structural changes were needed to balance the relationship."This is not about buying more soybeans and buying more LNG," he said.IMF members pledge to avoid using currencies as trade weaponUS says China spy charged with trying to steal aviation secrets
At IMF meetings, China's globalisation agenda left behind in trade debate