Asian stocks were in retreat on Tuesday, with investors in cautious mood amidst the continuing US debt ceiling standoff and ahead of the release of some key industrial data this week.
China’s under-pressure yuan and the slowing recovery of the world’s No2 economy, as well as a spate of bargain-buying, also combined to drag the region’s major indexes downwards.
Japan’s Nikkei share average dropped sharply from a 33-year high as many investors swooped to cash in their profits following a breathless eight-day rally.
The Nikkei started the day strong, reaching a fresh peak at 31,352.53 – a level last seen in August 1990 – but pared gains after the midday break, attracting more sellers.
The Nikkei share average edged down 0.42%, or 129.05 points, to close at 30,957.77, while the broader Topix slipped 0.66%, or 14.41 points, to 2,161.49.
Overseas players have been the main driver of the rally, drawn by the Tokyo Stock Exchange’s (TSE) push for better corporate governance and Warren Buffett’s increased investment in Japanese trading companies.
The Nikkei had surged about 7.7% since May 10 to reach Tuesday’s high, sending a popular technical indicator called the 14-day relative strength index (RSI) above 85. Readings higher than 70 on a scale to 100 are generally considered overbought.
Chinese stocks fell as market participants remained worried about the country’s slowing economic recovery, while a weakening yuan and geopolitical risks also kept investor sentiment fragile.
“Financial markets are losing faith in China’s economic recovery,” said Wei He, China economist at Gavekal Dragonomics in a note, as data last week showed April industrial output and retail sales growth undershot forecasts, suggesting the economy is losing momentum.
China’s Yuan Weakens
China’s yuan weakened again on Tuesday, flirting with fresh five-month lows, weighed by China’s weak recovery and as hawkish comments from US central bankers propped up the dollar.
The Shanghai Composite Index fell 1.52%, or 50.23 points, to 3,246.24, while the Shenzhen Composite Index on China’s second exchange slid 0.99%, or 20.24 points, to 2,018.72.
Most sectors in China’s market fell, with insurers down 2% and semiconductor-related firms dipping 1%.
Hong Kong’s benchmark Hang Seng Index fell 1.25%, or 246.92 points, to 19,431.25, while the China Enterprises Index dropped 1.35%.
Elsewhere across the region, in earlier trade, Sydney, Seoul, Mumbai, Singapore, Taipei, Manila and Jakarta all rose, though there were small losses in Shanghai and Wellington.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.03% by 0535 GMT, after touching its highest since May 9 a few hours earlier.
US Debt Ceiling Stand-Off
Investors’ key focus will next be on US personal consumption expenditures data and the minutes of the Federal Open Market Committee meeting, followed by initial jobless claims.
Meanwhile, President Joe Biden and House Speaker Kevin McCarthy could not reach agreement Monday on how to raise the US government’s $31.4 trillion debt ceiling with just 10 days before a possible default, but vowed to keep talking.
Ten-year and two-year US yields are near highs not seen since March, as traders start pushing back expectations for US rate cuts from July towards November or December.
Benchmark 10-year Treasury yields rose for a seventh straight session on the remarks to hit 3.728% overnight, and held steady near that level in Asia. Two-year yields were last at 3.875%.
The US dollar tracked the move and hit a six-month high of 138.88 yen in the Asia session. Firm against most other currencies, the dollar traded at $1.0800 per euro and $0.6645 per Australian dollar.
Oil prices kept climbing. Benchmark Brent crude futures rose 0.24% to $76.17 a barrel by 0535 GMT, while US West Texas Intermediate crude was at $72.29 a barrel, up 0.32%.
Spot gold fell 0.45% to $1,960.5 an ounce.
Tokyo – Nikkei 225 < DOWN 0.42% at 30,957.77 (close)
Hong Kong – Hang Seng Index < DOWN 1.25% at 19,431.25 (close)
Shanghai – Composite < DOWN 1.52% at 3,246.24 (close)
London – FTSE 100 > UP 0.09% at 7,777.71 (0934 GMT)
New York – Dow < DOWN 0.42% at 33,286.58 (Monday close)
- Reuters with additional editing by Sean O’Meara