Disappointing Chinese economic news puts pressure on Asian bourses
Sydney — Asian stocks dipped on Tuesday as Chinese economic data disappointed and investors pondered whether a marked flattening in the US yield curve might ultimately be a harbinger of a slowdown there.
China’s retail sales rose 10% year on year in October, while industrial output grew 6.2%.
Both came in under market forecasts and nudged down the Australian dollar, which is often used as a liquid proxy for bets on China.
The immediate damage was limited in stocks, with the blue-chip CSI300 index off 0.4% and EMini futures for the S&P 500 down 0.1%.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1% after two sessions of declines, while Australia fell 0.8%.
Japan’s Nikkei managed to recoup 0.5% after four sessions of losses.
Investors were waiting for any signs of compromise on US tax policy, after US Senate Republicans on Thursday unveiled a plan that would cut corporate taxes a year later than a rival bill from the House of Representatives.
Also on the menu of possible market-moving events are no fewer than 13 central bank speakers, including the heads of the US, European, British and Japanese central banks.
On Wall Street, a sharp drop in General Electric shares was offset by gains in high dividend-paying sectors including consumer staples and utilities.
The Dow rose 0.07%, while the S&P 500 and the Nasdaq each added 0.1%.
General Electric slashed its dividend by 50% and cut its profit forecast while unveiling a plan that narrowed its focus to aviation, power and healthcare.
Currency markets were mostly quiet, with the dollar barely changed against a basket of counterparts at 94.510. The euro was up 0.03% at $1.1668.
Sterling hovered at $1.3113, having fallen as far as $1.3063 on Monday amid concern that British Prime Minister Theresa May was losing her grip on power.
May’s blueprint for Britain’s departure from the EU faces a crucial test starting on Tuesday, when legislators try to win concessions on legislation to sever ties.
The dollar was steady at ¥113.68 after bouncing from ¥113.25 support overnight.
Yield curve in the spotlight
A rise in US bond yields has generally made it more attractive to buy dollars with money borrowed in low-rate currencies like the yen and Swiss franc.
Figures out on Monday from the Commodity Futures Trading Commission showed the speculative net short position in the yen had blown out to the largest since January 2014, and in the Swiss franc to the biggest since December 2016.
Yields on Treasury two-year notes hit a fresh nine-year high on Monday, shrinking the spread to 10-year paper to near its smallest since 2007.
The trend in part reflects bets that the US Federal Reserve’s plans to raise interest rates in December and two or three times next year will prove all too successful in restraining inflation by ultimately slowing the economy.
Tom Porcelli, chief US economist at RBC Capital Markets, said a glance at history suggested a flatter, and particularly an inverted, yield curve was "compelling as an early warning sign" of recession.
However, history also showed that the average amount of time it took the curve to go from flat to inverted was 18 months, and the average time to go from inverted to recession was 18 months.
"So even if we take the inverted curve as gospel, it suggests the expansion still has multiple years in it," said Porcelli.
In commodity markets, gold was steady at $1,276.83 an ounce. The metal has stayed broadly within $15 of its 100-day moving average, currently at $1,277 an ounce, for most of the past month.
Oil prices held in a tight range as support from Middle East tensions and record long bets by fund managers balanced rising US production.
US crude was off 5c at $56.71, while Brent crude futures eased 8c to $63.08 a barrel.