Asia’s major share indexes were in retreat on Wednesday and on track for a second consecutive monthly drop as worrying China factory data and the continuing US debt ceiling stand-off distracted investors.
China’s yuan hit a six-month low and stockmarkets staggered as weak factory activity figures offered the latest evidence that the recovery in the world’s second-biggest economy is faltering.
At the same time a deal to suspend the US debt limit and avoid a default was set for debate in Washington which could stretch through to the weekend.
Japan’s Nikkei share average snapped a four-day winning streak, as investors booked profits after the benchmark scaled a 33-year high earlier this week, while a firmer yen and that disappointing China data also weighed on markets.
The Nikkei fell 1.41% to 30,887.88 in its biggest daily drop since April 5. It jumped 7% in May to post its biggest monthly gain since November 2020.The broader Topix slipped 1.32% to 2,130.53.
The dollar retreated overnight after Japan’s top currency diplomat said the country would closely watch forex market moves and respond “appropriately” as needed.
The remarks were made after financial authorities met in response to the yen weakening to a six-month low versus the dollar.
In China, blue chip stocks dropped 1.02% to 2023 lows and government bonds rallied after data showed China’s manufacturing activity PMI fell to 48.2 for May, contracting even faster than expected. Services growth slackened to its slowest pace in four months.
The yuan dropped 0.3% to 7.1090 per dollar after that – a level not seen since the country was under tight public health restrictions in November last year.
The currency is down more than 2.6% on the month as indicators from output to industrial profits, retail sales and loan growth have missed forecasts.
Australia Consumer Prices Rise
The Shanghai Composite Index fell 0.61%, or 19.65 points, to 3,204.56, while the Shenzhen Composite Index on China’s second exchange slid 0.44%, or 8.81 points, to 2,003.18.
Hong Kong’s benchmark slumped to put the index more than 20% beneath a January peak touched when hopes of a reopening rally were high. The Hang Seng Index slipped 1.94%, or 361.51 points, to 18,234.27.
Elsewhere across the region, Sydney, Seoul, Singapore, Taipei, Wellington, Manila and Jakarta all suffered big losses.
Data from Australia showed an unexpected rise in consumer prices and came with a warning from the central bank chief of pain ahead, prompting traders to nudge up the chances of another rate hike there next week.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2% and is down 2.5% in a month where hopes a resurgent China would drive global growth have run dry.
US Debt Deal Talks
Meanwhile, inflation and the US debt ceiling are still in focus while German inflation figures come later on Wednesday and are expected to show a fairly sharp moderation.
A deal to suspend the US debt limit and avoid a default cleared a House of Representatives committee overnight and is set for debate and passage on Wednesday, which would send it to the Senate where debate could run through to the weekend.
Treasuries rallied after the initial deal was struck, on the expectation a US default would be averted, but the market remains skittish as once authorised to borrow the Treasury is likely to issue lots of debt to replenish its coffers.
Benchmark 10-year yields dropped 12.4 basis points overnight and fell another 3 bps on Wednesday in Asian trade to 3.6675%. Yields fall when bond prices rise. Two-year yields were down 3.5 bps to 4.4379% on Wednesday.
The dollar has been on the rise in anticipation that yields eventually go up again and as US data comes in stronger than in Europe. This month the euro is down nearly 3% on the greenback to $1.0686 and the yen is down about 2.3% to 139.51 per dollar.
In commodity markets, growth jitters have benchmark Brent crude futures down 7.8% this month to $73.35 a barrel. Gold is off two-and-a-half year highs at $1,954 an ounce.
Tokyo – Nikkei 225 < DOWN 1.41% at 30,887.88 (close)
Hong Kong – Hang Seng Index < DOWN 1.94% at 18,234.27 (close)
Shanghai – Composite < DOWN 0.61% at 3,204.56 (close)
London – FTSE 100 < DOWN 0.20% at 7,507.06 (close)
New York – Dow < DOWN 0.15% at 33,042.78 (Monday close)
- Reuters with additional editing by Sean O’Meara