Disappointing news on China’s economy snaps rally in Asian shares
Tokyo/Singapore — Asian stocks pulled back on Tuesday, brushing off a firmer lead from Wall Street, as investors turned cautious after soft Chinese economic data.
They are also awaiting fresh developments on US-China trade talks and North Korea.
Crude oil prices held near three-and-a-half-year highs on supply concerns, while the dollar edged higher, underpinned by a rise in US bond yields.
Spread betters expected European stocks to follow their Asian peers lower, with Britain’s FTSE, Germany’s DAX and France’s CAC all expected to drop 0.2%.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8%, after rising the previous day to its highest since late March. The index had rallied for three straight sessions before Tuesday.
Japan’s Nikkei dipped 0.1%, with its surge to a three-month peak bogging down.
"The markets appear to be taking a breather after their recent surge, awaiting fresh developments in matters such as US-China trade issues and Washington’s upcoming summit with North Korea," said Yoshinori Shigemi, global markets strategist at JP Morgan Asset Management in Tokyo.
The two countries were still "very far apart" on resolving trade frictions, US ambassador to China Terry Branstad said on Tuesday, as a second round of high-level talks was set to begin in Washington.
Hong Kong’s Hang Seng lost 0.9%, pulling back from a two-month peak to snap a five-day winning run, while Shanghai slipped 0.2%.
China reported weaker than expected investment and retail sales in April and a drop in home sales, clouding its economic outlook even as policy makers try to navigate debt risks and defuse a heated trade row with the US.
The downbeat economic news temporarily offset optimism over further foreign inflows into Chinese stocks ahead of their inclusion in MSCI’s widely tracked equity benchmarks from June 1.
Investors in Chinese equities will probably have to rejig their exposure after the US index publisher made some last-minute tweaks in its index weightings on Tuesday.
MSCI said 234 Chinese large caps would be included in its global and regional indices next month.
Wall Street scraped out gains on Monday after weakness in defensive stocks offset optimism following US President Donald Trump’s conciliatory remarks towards China’s ZTE Corp that helped calm US-China trade tension.
While higher oil prices sometimes raise concern about inflation, the recent crude oil surge — Brent has risen 17% so far in 2018 — was seen to be generally supportive for equities.
"The recent rise in prices of crude oil won’t have a broadly negative impact on equity markets if it continues at the current pace," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.
"The rise in oil prices is boding well for certain stock sectors like energy shares."
Brent crude added 6c to $78.29 a barrel, nearing a three-and-a-half-year high marked on Monday.
US crude oil futures advanced 2c to $70.98, coming within reach of their highest level since November 2014, scaled on Thursday.
Oil prices received their latest lift as the Opec cartel reported that the global oil glut has been virtually eliminated. Tension in the Middle East and uncertainty about output from Iran amid renewed US sanctions have contributed to the recent rise in oil prices.
"The commitment of Saudi Arabia and the rest of Opec to the production cuts is a major factor in supporting the price at the moment as well as the possibility of reduced exports from Iran due to sanctions," said William O’Loughlin, investment analyst at Rivkin Securities.
In currencies, the dollar index, which measure it against a basket of six major currencies, gained 0.3% to 92.801.
The greenback took a knock against the euro earlier on Monday after European Central Bank policy maker Francois Villeroy de Galhau said the ECB could give fresh timing guidance of its first rate hike as the end of its exceptional bond purchases approaches.
The US currency managed to bounce back, however, after Cleveland Federal Reserve president Loretta Mester reiterated support for gradual interest rate increases.
The euro lost 0.1% to $1.1913 after pulling back sharply from the previous day’s high of $1.1996.
The dollar was 0.25% higher at ¥109.920, adding to the previous day’s gains.
The currency drew support as US Treasury yields rose amid the easing of US-China trade tensions.
The 10-year Treasury note yield extended its overnight rise and brushed a 12-day high of 3.021%.