Asian shares slip amid concern about possible Chinese slowdown

Also starting to attract wider attention, Saudi Arabia doubled down on pressure from the West on the disappearance of Jamal Khashoggi, a US resident and Washington Post columnist, after he entered the Saudi consulate in Istanbul on October 2.

US President Donald Trump has threatened “severe punishment” if it turns out Khashoggi was killed while many company executives have cancelled 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 destabilising the oil-rich kingdom.

Saudi Arabia’s shares plunged as much as 7% on Sunday, and closed down 3.5% at their lowest levels since early January.

Shares in Dubai, a regional economic hub, slid 1.5% to a low last seen in January 2006.

Oil prices reversed their downtrend since early October.

Brent crude futures rose 1.2% to $81.40 a 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 US borrowing costs, which are also seen hurting weak borrowers, especially those in emerging markets.

Although the US 10-year yield posted its first major fall in about two months last week on stock market rout, the yield was slightly higher on Monday to 3.15%.

Investors were also bracing for an EU summit meeting from Wednesday.

The British pound shed 0.3% to $1.3107 after negotiators from the EU and the UK failed to clinch a Brexit deal ahead of the crucial summit.

The euro traded at $1.1593, 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 US 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 worries 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 0.1% to ¥112.10.

Reuters