Market Wrap MENA-Asia 18 August: Nikkei Sinks 2.5 Percent as Gulf Steadies and Egypt Slips

By The Edge Research Team

Asia sold off on Tuesday while the Gulf steadied, an inversion of Monday’s map, as the first full session after the 60-day window between the United States and Iran expired ran into rising long-term yields across the globe, per CNBC. Japan’s Nikkei 225 sank 2.54 percent to lead losses among the region’s major benchmarks, South Korea’s Kospi gave up an opening rally to close 1.55 percent lower on its return from holiday, and oil held above 91 dollars, while Dubai snapped a three-session slide and Kuwait’s All-Share rebounded. Egypt’s EGX 30 fell a further 0.25 percent as the pound’s official rate weakened past 50.5 to the dollar.

Across Asia, the pressure came through the bond market as much as the oil market. The Nikkei 225 dropped 2.54 percent to 67,460.73 and the broader Topix 1.05 percent to 4,140.22, per CNBC, after Japan reported weaker-than-expected growth alongside a hotter-than-expected GDP deflator, with yields on Japan’s long-dated government bonds hovering near the 40-year highs reached in May, per CNBC. The selling fed a global long-end move that took the 30-year US Treasury yield to multi-decade highs in Tuesday trading. South Korea’s Kospi closed 1.55 percent lower at 6,869.83 on its first session since the substitute holiday, a full reversal from an opening jump of 2 percent powered by Samsung Electronics and SK Hynix, with the small-cap Kosdaq down 3.5 percent at 834.2, per CNBC. Taiwan’s Weighted Index fell 1.20 percent to 45,308.68, Singapore’s Straits Times 1.16 percent to 5,701.40 and India’s Nifty 50 0.55 percent to 24,154.90, per CNBC. China held up better than its neighbours: the Shanghai Composite added 0.19 percent to 3,990.30 and Hong Kong’s Hang Seng was little changed at 25,471.15, up 0.07 percent, while the Shenzhen Component gave back 0.56 percent to 14,622.50 after Monday’s 2.44 percent jump and the CSI 300 declined 0.32 percent to 4,725.81, per CNBC. Australia’s S&P/ASX 200 closed 0.04 percent lower at 9,070.00, effectively flat, per CNBC.

In the Gulf, Monday’s broad selling did not carry over. Dubai’s DFM General rose 0.04 percent to 5,858.28, ending a three-session decline per the exchange’s own daily closing table, on 127.8 million shares and 533.2 million dirhams of value. Boursa Kuwait’s All-Share recovered 0.13 percent to 8,774.14, though the Premier Market slipped a further 0.04 percent to 9,210.86, per the exchange. Saudi Arabia’s TASI closed 0.03 percent higher at 10,911.58 after the closing auction, a narrow gain carried on weak breadth of 96 gainers against 160 decliners, with the MSCI Tadawul 30 up 0.10 percent at 1,467.51 and Nomu up 0.32 percent at 21,583.55, per the Saudi Exchange. Abu Dhabi’s FADGI added 0.22 percent to 10,098.28, a second consecutive gain, per the exchange. Muscat’s MSX 30 edged up 0.12 percent to 7,549.80, with 23 gainers against 23 decliners across the market on 50.3 million rials of turnover, per the exchange, on the same day CNBC reported that President Donald Trump threatened to bomb Oman if it “gets in the way” of Washington’s efforts to reopen the Strait of Hormuz, with Tehran and Muscat in active talks over a new maritime route. Qatar’s QE Index fell a second straight session, down 0.45 percent at 9,848.10, our calculation against Monday’s close. Bahrain’s All Share eased 0.25 percent to 1,946.72 and Jordan’s ASE General rose 0.32 percent to 3,990.62, per the exchanges.

Egypt’s pullback from its record extended into a second session, and this time the currency moved with it. The EGX 30 fell 0.25 percent to 55,276.78 after touching a session low of 55,077.64, its high of 55,569.18 stopping well short of the 56,101.69 intraday record set on Monday, leaving the close 577.96 points, or 1.03 percent, below the record close of 55,854.74, our calculation, with the year-to-date gain at 32.15 percent, per the exchange. The Central Bank of Egypt’s official rate for 18 August is 50.4459 buy and 50.5849 sell per dollar, about 0.6 percent weaker than Monday’s 50.1361 and 50.2719, our calculation, giving back Monday’s firming and more.

On the strait itself, the risk signals hardened. A cargo vessel was struck by a projectile while transiting the Strait of Hormuz on Tuesday, causing damage to the engine room and a crew casualty, with the remaining crew assisted by the Omani Coast Guard, the UK Maritime Trade Operations agency said, per CNBC. Just three vessels transited the strait on Sunday, according to Kpler ship-tracking data cited by CNBC, and Trump on Monday ruled out extending the lapsed 60-day window, telling reporters Tehran would not accept the terms he considers necessary. Eurasia Group told CNBC it no longer expects an agreement by September, seeing a limited deal that allows Hormuz traffic to partially recover as the most likely outcome by year-end.

In commodities and currencies, energy stayed bid into the European afternoon, in a snapshot captured around 12:00 GMT, 3 pm Kuwait time. ICE Brent for October traded at 91.10 dollars a barrel, up 0.25 percent, WTI for September at 85.09 dollars, up 0.70 percent, and COMEX gold for December at 4,448.50 dollars an ounce, down 0.56 percent, per CNBC. The euro was little changed at 1.1577 and sterling 0.13 percent lower at 1.3525, with the yen at 159.66 per dollar and the Kuwaiti dinar at 0.3071, per CNBC. Bitcoin was flat at 64,293.36 dollars, up 0.04 percent, per CNBC. The Cboe Volatility Index closed Monday at 15.19, up 6.60 percent, per Cboe, with the US session yet to open on Tuesday.

For reference, Monday’s closes from our 17 August wrap show Wall Street and Europe both lower, a second consecutive decline for the three main US averages, with the official Treasury curve higher across the board. Wall Street was yet to open on Tuesday at the time of writing, so Monday’s closes are carried below strictly for reference.

MENA equities, 18 August close, ranked by change

Asia equities, 18 August close, ranked by change

US equities, Monday 17 August closes, for reference, ranked by change

Europe equities, Monday 17 August closes, for reference, ranked by change

Commodities, intraday 18 August, ranked by change

Currencies, 18 August

US Treasury yields, Monday 17 August official curve, for reference, ranked by change

Volatility and crypto

Why it matters: Tuesday inverted Monday’s map, and the inversion is the story, our reading. The Gulf, closest to the conflict, steadied and in places rose, with Dubai ending a three-session slide and Abu Dhabi adding a second day, while the deep selling landed in Asia, led by Japan, where the trigger was as much domestic as geopolitical: weak growth with a hot deflator pushed long Japanese yields toward 40-year highs and fed a global long-end selloff. China’s relative resilience shows the move ran through the yield channel more than any single oil story. An oil price above 91 dollars cuts both ways in this region, taxing the importers of Asia while cushioning the exporters of the Gulf, and Tuesday’s leadership table is what that division looks like in prices. Egypt is the exception worth watching: a second session of equity profit-taking arrived together with an official exchange rate 0.6 percent weaker, so the pressure that stayed in equities on Monday reached the currency on Tuesday.

Outlook: The next sessions test whether the strait stays a slow-burn story or escalates, our reading. The markers are whether the Tehran and Muscat channel survives Washington’s threats, whether Tuesday’s projectile strike reported by UKMTO remains an isolated incident, whether Brent holds above 91 dollars into the weekly US inventory cycle, and whether Wall Street extends its two-session decline when it reopens Tuesday evening Kuwait time, with the official Treasury curve for 18 August to give the first authoritative read on how far the long end has moved. For Egypt, the levels are Tuesday’s low of 55,077.64 as the near support and the 55,854.74 record close above.

Sources: CNBC; the Saudi Exchange; Boursa Kuwait; Dubai Financial Market; Abu Dhabi Securities Exchange; Muscat Stock Exchange; Bahrain Bourse; Amman Stock Exchange; the Egyptian Exchange; Central Bank of Egypt.

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