Global equities struggle on poor China manufacturing output

World shares struggled on Tuesday while the yen slid to near a one-year low against the dollar after the Bank of Japan’s (BOJ’s) moves towards ending years of huge monetary stimulus underwhelmed some investors.

European shares edged up 0.3%, led by real estate and chemical stocks, offerings some relief after Asian equities earlier lost ground on renewed fears over the prospects for the Chinese economy following weak manufacturing data.

Still, the Stoxx 600 is poised for its worst monthly performance since September 2022.

The MSCI world equity index, which tracks shares in 47 countries, was flat. Wall Street futures gauges pointed to slight losses.

The yen weakened 0.9% against the dollar to touch a session low of ¥150.36/$ as the central bank further loosened its grip on long-term interest rates on Tuesday by tweaking its so-called bond yield control policy (YCC).

Analysts viewed the move by the central bank as a small step towards dismantling the long-running and YCC policy.

But the yen fell as traders focused on the BOJ’s dovish pledge to “patiently” maintain accommodative policy, and forecast for inflation to slow back below 2% in 2025.

Under criticism that its heavy defence of the cap is causing market distortions and unwelcome yen weakness, the BOJ had raised its de facto ceiling for the yield to 1.0% from 0.5% in July.

“The yen has come off — that’s because markets were expecting more,” said Robert Alster, CIO at Close Brothers Asset Management.

The yen also weakened further against the euro, with the single currency up 1% to a 15-year high of ¥159.945/€.

In government bond markets, the yield on the 10-year Japan government bond eased slightly after the announcement but remained at decade-high levels.

China data spooks markets

Asian equities slid earlier as Chinese manufacturing activity returned to contraction, reviving some worries about the world’s second-largest economy. Recent indicators had showed a nascent recovery in China.

The MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7%, hovering close to the one-year low it touched last week. The index is down 4% in October and on course for a third straight month in the red.

Nomura analysts said they expect economic conditions in China to remain poor or even deteriorate further in the next few months.

Investors are this week focused on major central bank meetings, including those at the US Federal Reserve and the Bank of England.

Later on Tuesday, the Federal Open Market Committee will begin a two-day monetary policy meeting, and is expected to leave the Fed funds target rate at 5.25%-5.50%.

The US economy remains resilient, recent data showed, and comments from Fed chair Jerome Powell will be scrutinised to gauge how long interest rates are likely to stay elevated.

The yield on 10-year treasury notes was up 0.9 basis points at 4.886%.

The dollar index, which measures US currency against six rivals, was flat. The euro looked set to reverse two straight months of losses against the dollar with a slight 0.3% gain for October. The single currency was last up 0.2% at $1.0632.

In commodities, oil prices rose as worries over supply stirred by conflict in the Middle East blunted concerns over China. West Texas Intermediate crude rose 0.8% to $82.86 a barrel and Brent was at $88.21, up 1% on the day.

Reuters