Asia shares tumble on China’s services slowdown

Sydney — Asian shares fell on Wednesday after a slowdown in China’s services activity dented sentiment and as markets turned their focus to the release of Federal Reserve minutes and a key US jobs report later in the week.

Market conditions were subdued after the Independence Day public holiday on Wall Street on Tuesday. S&P 500 futures dipped 0.1% and Nasdaq futures fell 0.2%.

MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 0.7%. Japan’s Nikkei also fell 0.4%, marking the second straight session of declines after climbing to fresh three-decade highs.

Australia’s resources-heavy shares fell 0.2% after the Reserve Bank of Australia (RBA) held rates steady on Tuesday, but warned of more tightening ahead.

In China, a survey showed the expansion in the services sector continued to slow in June, adding to signs that the country’s post-pandemic recovery is losing steam.

Chinese blue chips fell 0.5% and Hong Kong’s Hang Seng index slumped 1.3%.

“While it may feel like China has taken two steps back, the next move could be three forward,” said Andrew McCaffery, global chief investment officer at Fidelity International, adding that Chinese shares are trading at a huge discount.

“This may feel slightly contrarian at present, but it is an attractive entry point, especially as there are some signs of stabilisation in the US/China relationship.”

US treasury secretary Janet Yellen will visit China later this week, but escalating tensions in the tech space, with Beijing restricting exports of two metals and Washington reportedly banning Chinese firms from accessing cloud computing, weighed on broader sentiment.

However, shares of some Chinese makers of products used to make chips rallied as supply concerns sent prices of the metals higher.

Traders are now looking ahead to the release of the minutes of the Fed’s last policy meeting later on Wednesday and the non-farm payrolls report on Friday.

Markets are almost certain that the Fed will hike in July after pausing last month.

Economists polled by Reuters expect the US added 225,000 jobs last month, slowing from 339,000 job gains in the pervious month, and average earnings likely held steady at a monthly 0.3% growth.

Chris Weston, head of research at Pepperstone, said it was just a month ago that the market wanted to see a cooling job market for signs that the Fed’s rate hikes are working.

“It now seems the thesis has evolved, and the market wants to see strong job creation, conditional on subdued wage growth.”

In the currency markets, moves are largely muted. The yen was little changed at 144.53 per dollar, slightly away from 145.07, which was its weakest in eight months.

The Australian dollar slid to $0.6682, after a whipsaw session that saw it recover all of the losses from the RBA’s pause and test key resistance of $0.6696.

Short-term treasury yields eased four basis points (bps) to 4.9044%, while 10-year yields were little changed at 3.8467%.

Oil prices gave up some of their gains on Wednesday after advancing on supply concerns stemming from production cuts by top producers Saudi Arabia and Russia.

Brent crude futures fell 0.6% to $75.78 a barrel after climbing 2.1% overnight.

Reuters