Asian shares hit six-week lows on Swiss referendum

Gold prices tumbled on Monday after Swiss voters overwhelmingly rejected the proposals to boost gold reserves in a referendum, joining a broad rout in commodities that sent copper and oil prices to four- and five-year lows.

The slide in the oil and commodity prices is hurting many assets tied to the resource sector - from Australian mining shares to the Malaysian ringgit.

MSCI's broadest index

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.9 per cent, hitting six-week lows.

US stock futures also slipped 0.4 per cent, though some market players think the fall could stem partly from disappointing sales at the start of the US holiday shopping season last Friday.

European stocks

European stocks are expected to fall, with Germany’s DAX and France’s CAC 40 seen shedding 0.6 per cent.

Gold fell more than two per cent at one point to $1,142.90 per ounce, its lowest level in more than three weeks, while silver was also hit, falling more than six per cent to a five-year low below $14.50 per ounce.

Swiss gold reserves plan

The Swiss gold reserves proposal, had it been approved, would have compelled the Swiss National Bank (SNB) to more than double its gold reserves and banned it from ever selling the metal, threatening its ability to defend a €1.20 cap on the Swiss franc imposed at the height of the euro zone crisis.

The Swiss franc dipped to 1.2042 on the euro from 1.2018 at the end of last week, though the Swiss currency is supported by investors who still regard it as one of the safest currencies in the world. It last stood at 1.2040.

“The result should of course temporarily relieve the pressure on the SNB’s currency floor, albeit whilst doing little or nothing in our opinion to reverse the fundamental downward trajectory of EUR/CHF,’’ said JPMorgan analyst Paul Meggyesi.

Crude oil

Oil prices hit five-year lows, unable to find a bottom despite their biggest fall in 2 1/2 years last week after OPEC held back from cutting output in the face of a supply glut.

US crude briefly fell more than three percent to a five-year low of $64.10 per barrel, with the fall from June exceeding 40 per cent. It last stood at $64.56, down 2.4 percent.

Adding fuel to the fire, Saudi Arabia's oil minister told fellow OPEC members last week that they must combat the US shale oil boom.

“They (OPEC) can get by at $60 a barrel, but that price would knock out a fair whack of the competition — much of US shale oil for example — as well as put investment in future capacity growth firmly on the back-burner,’’ ANZ analysts said in a note. “They're playing the long game, banking that others can’t.’’

Copper prices

Copper also fell to as low as $6,230.75, piercing through its March low to hit its lowest levels since mid-2010. It last stood at $6,245.50, down 1.7 per cent.

The Australian dollar fell more than one per cent to a four-year low of $0.8417 as did the Malaysian ringgit, which fell to 3.437 to the dollar.

China’s manufacturing PMI

Adding salt to commodities’ wounds, Chinese official manufacturing data suggested growth is slowing in China, demand from which has supported commodity prices for years.

Sliding oil and raw material prices have stirred deflation fears in the euro zone and Japan, cementing expectations that the European Central Bank and the Bank of Japan will take more steps to support their respective economies.

The dollar, taking advantage of such concerns, attracted bids against the euro and yen.

Deflation fears

The euro was slightly weaker at $1.2449 after having fallen on Friday on news that annual inflation in the euro zone cooled to a five-year low of 0.3 per cent in November.

Many traders expect the ECB may signal further action later this week to ward off deflation.

Dollar vs yen

The dollar also hit a seven-year high of 119.03 yen and the dollar index, which measures the greenback against a basket of major currencies, rose to 88.451, a four-year high.

“Given that the Fed is going to raise rates next year, the monetary policy divergence should support the dollar,’’ said Osao Iizuka, the head of FX trading at Sumitomo Mitsui Trust Bank.

The yen’s fall and lower commodity prices helped Japanese shares, with the Nikkei posting 0.8 per cent gains to close at seven-year high.