Asia markets: Yen firms, Nikkei gains as oil slips

Summary:

• Oil extended some of Tuesday's losses after several downside catalysts, including a report that Trump backs easing Russia sanctions for the release of political prisoners and a US offer of up to 40 million barrels from the Strategic Petroleum Reserve. Gold made a small gain.
• On the other hand, Axios reported that Qatari mediation this week produced little progress between the US and Iran, and that US officials think Trump could order a return to major combat after the midterms.
• Japan's August industrial output fell 1.7% m/m against a forecast rise of 1.7%, and retail sales slowed to 2.7% y/y against 3.3% expected. USD/JPY fell from around 157.5 to around 156.4 on Japanese half-year-end flows.
• Australian CPI rose 4.0% y/y in August as expected, with fuel driving the rise, while trimmed mean rose 0.2% m/m against 0.3% forecast and held at 3.6% y/y. Market pricing implies around a 25% chance of an RBA hike in November, and the Australian dollar was lower.
• China's official manufacturing PMI rose to 50.1 and non-manufacturing to 50.2. RatingDog manufacturing was 52.1, services 51.6 and composite 52.4.
• The Nikkei rose 1.0%, the KOSPI fell 0.1%, the Hang Seng was flat and the Shanghai Composite rose 0.3%.

Oil and geopolitics

Oil prices saw some further losses on Wednesday after sliding on Tuesday, when Brent settled down circa 2.5% at around $103 a barrel and WTI closed at around $89. Several downside catalysts contributed. The Atlantic reported that US President Donald Trump backs a strategy to ease Russia sanctions in exchange for the release of political prisoners, which could open the way for the US to sign deals involving Russian oil, diesel, rare earth minerals and other commodities. The US Department of Energy also offered up to 40 million barrels from the Strategic Petroleum Reserve. Separately, Goldman Sachs estimated that Persian Gulf oil exports, including dark exports, recovered to their 2025 average after doubling in September, with Saudi exports leading the rebound and Iran shipping no crude by sea.

Qatar persisted with mediation, but Axios, citing three sources, reported that this week's efforts yielded little progress between the US and Iran. Axios said the stalemate has strengthened the belief on both sides that renewed conflict is more likely, and that US officials think Trump could order a return to major combat operations after the midterms. Trump has said he offered Iran nothing. Gold made a small gain.

Japan and the yen

Japan's August industrial output fell 1.7% from July against a forecast rise of 1.7%, and rose 3.4% y/y. Retail sales slowed to 2.7% y/y, below the 3.3% expected, and fell 1.2% m/m. Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expect output to increase 3.2% in September and 3.1% in October.

The yen was a large mover. USD/JPY fell from around 157.5 to around 156.4 in Asia as Japanese investors and exporters sold foreign currency into the fiscal half-year end. Fed President John Williams said on Tuesday there is no urgency to raise rates again, although he said one more increase may be appropriate late this year. Comments from US and Japanese officials also weighed on the pair.

Australia

Australian consumer prices rose 4.0% y/y in August, in line with forecasts and up from 3.5%, with fuel driving the rise. Trimmed mean, the Reserve Bank of Australia's preferred gauge of underlying inflation, rose 0.2% m/m against a forecast of 0.3% and held at 3.6% y/y. Reuters said the softer core reading lessened pressure for a near-term rate rise. The RBA lifted its cash rate to 4.6% on Tuesday, and Westpac has said a November follow-up is its base case, while market pricing implies around a 25% chance. The Australian dollar was lower.

China

China's official manufacturing PMI rose to 50.1 in September from 49.8, matching forecasts and ending two months of contraction, while the non-manufacturing PMI rose to 50.2 from 49.0, above the 49.3 forecast. The private RatingDog surveys also improved: manufacturing rose to 52.1 (forecast 51.6, prior 51.5), a five-month high with input costs driven by metals and oil, services to 51.6 (forecast 51.1, prior 51.4) and composite to 52.4 from 52.1. The data came ahead of the week-long National Day holiday, with mainland markets closed from October 1 to 7 and the Hong Kong exchange shut on Thursday.

Equities

The Nikkei 225 rose 1.0% despite the Japanese data, which included a contraction in industrial output against a forecast for growth. The KOSPI fell 0.1%, fading initial gains, as weak data and tensions with North Korea weighed on sentiment after a landmine explosion in the demilitarised zone injured three South Korean officers. The Hang Seng was flat and the Shanghai Composite rose 0.3%.