Asia: Stocks mostly lower ahead of Yellen speech

Asia stocks were mostly in the red on Tuesday as traders exercised caution ahead of Federal Reserve chair Janet Yellen’s speech later in the week.

At the close, the Nikkei fell 0.61% to 16,497.36 points, the Hang Seng dropped 0.18% to 22,956.66 points while Shanghai rose 0.16% to 3,089.71 points.

Oil prices continued to decline on doubts that the Organization of the Petroleum Exporting Countries would reach a deal to cut production at a meeting next month. Reports that Iraq – OPEC’s second-biggest producer – was set to ramp up its exports also weighed on the market.

Brent crude fell 0.54% to $48.90 per barrel and West Texas Intermediate edged down 0.80% to $47.03 per barrel at 0926 BST. Energy shares slumped including Oil Search and Woodside Petroleum.

Offsetting the drop in oil, copper three-month futures on the London Metal Exchange rose 0.2%, giving a boost to Australian miners. BHP Billiton shares rose while Rio Tinto reversed early gains to end the session lower.

Meanwhile, the main focus this week is on Yellen’s speech on Friday in Jackson Hole with economists hoping she’ll shed more light on the timing of the next interest rate hike.

“Yellen’s speech on Friday remains the headline event this week and I think we could continue to see an element of caution in the markets in the lead up to this,” said Craig Erlam, senior market analyst at Oanda.

“Investors are still not buying a 2016 rate hike, even following Stanley Fischer’s comments over the weekend regarding the economy – markets now marginally pricing in February - so the probability that Yellen says something that goes against what’s priced in seems quite high.

“The only question is whether she’ll strongly hint at a hike this year or indicate that holding off to early next year may be warranted, at which point markets would push the hike right back once again.”

The Fed Fund Futures indicate a 18% chance of a September rate increase and a 41% chance of a December rate rise.

In China, business sentiment fell in August as decline in demand and less favourable credit conditions weighed, according to a survey. The MNI China Business Sentiment Indicator, a gauge of current business sentiment, fell 2.2% to 54.3 in August from a nine-month high of 55.5 in July. The indicator remained above the 50 breakeven level for the fifth consecutive month but marked the first decrease in three months.

In Japan, central bank governor Haruhiko Kuroda spoke at a Fintech Conference but didn’t touch on monetary policy, as expected. Kuroda said the Bank of Japan may apply financial technology, or "fintech," to its operations in the future given its growing influence on global payments.

On the data front, Japan’s manufacturing activity contracted in August, although at the slowest pace in six months. The Nikkei-Markit flash manufacturing purchasing mangers’ index came in at 49.6, a slight improvement on the 49.3 final reading for July. A reading below 50 signals a contraction while a level above that indicates an expansion.

Meanwhile, a stronger yen against the dollar put pressure on Japanese exporters. Shares in automakers Honda Motor and Mazda Motor fell.

The yen rose 0.16% against the dollar at 0941 BST.

The dollar fell against other major currencies after rallying on Monday.