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Spreadbetters expected European stocks to open mixed, with
Britain's FTSE <.FTSE> edging up 0.15 percent, Germany's DAX <.GDAXI>
dipping 0.1 percent and France's CAC <.FCHI> 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
<.MIAPJ0000PUS> fell 1 percent while Shanghai shares <.SSEC>
were down 0.75 percent.
Japan's Nikkei <.N225> slumped 1.8 percent, with carmaker shares
<.ITEQP.T> 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
<.MIWD00000PUS> 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.
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 canceled their plans to attend a Saudi investor
conference later this month.
Investors suspect the latest development could undermine the
leadership of Crown Prince Mohammed bin Salman and has the risk
of eventually destabilizing the oil-rich kingdom.
Saudi Arabia's shares <.TASI> 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 <LCOc1> 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.
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 <US10YT=RR>.
Investors were also bracing for a European Union summit meeting
from Wednesday.
The British pound <GBP=D3> 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 <EUR=>, 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 <JPY=>.
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by
Shri Navaratnam and Richard Borsuk)
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