Asian stocks were on a weak footing on Wednesday as a slip in crude oil prices dampened investors’ appetite for riskier assets, while the recently bullish dollar stalled against the euro and yen following a mixed bag of US economic data.
Japan’s Nikkei lost 0.6 per cent as the yen firmed.
Prime Minister Shinzo Abe is expected to announce later on Wednesday that he will delay a scheduled sales tax hike by two-and-a-half years to avoid a further shock to the sputtering economy, but the move has been widely expected and is adding to doubts about his reflationary policies and commitment to cutting the country'’ massive public debt.
Other decliners included Australian stocks, which fell 0.9 per cent.
Shanghai see-sawed in and out of negative terrain, and was last up 0.1 per cent, after rallying hard the previous day on expectations MSCI could add China’s mainland stocks to its emerging market benchmark for the first time.
There was little market reaction to the official and private surveys on China’s manufacturing activity, which were roughly in line with expectations, underlining doubts that the world’s second-largest economy is picking up.
China factory PMI
The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) showed activity at China’s factories shrank for a 15th straight month in May. The official manufacturing May PMI painted a slightly more optimistic picture and stood unchanged from the previous month at 50.1
MSCI’s broadest index of Asia-Pacific shares outside Japan recovered from an earlier dip and crawled up 0.1 per cent. Hong Kong’s Hang Seng rose 0.1 per cent, while South Korea’s KOSPI was flat.
The Dow shed 0.5 per cent and the S&P 500 dipped 0.1 per cent on Tuesday, as energy shares weakened in the wake of a slip in oil prices and offset a rise in safe-haven utilities.
Crude oil
Crude oil prices pulled back from eight-month highs reached last week amid expectations that a global glut was easing and fell overnight to profit taking. US crude was last down 0.2 per cent at $49.02 a barrel and Brent fell 0.3 per cent to $49.75.
The fall in oil prices was exacerbated after United Arab Emirates Oil Minister Suhail bin Mohammed al-Mazroui said he was happy with the oil market, noting that prices had been correcting higher.
OPEC meet
The UAE oil minister’s comments touched a nerve in a market wary that an OPEC meeting on Thursday may not pave the way for a production freeze.
“The political will of the OPEC countries to enact a production freeze is clearly waning. A production freeze is unlikely to come up as an agenda at the June meeting,” wrote Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.
“A sense of crisis among the oil producing countries appears to have receded following the recent spike in crude oil prices.”
Dollar vs yen
In currencies, the dollar traded at 110.650 yen, having come off a one-month high of 111.455 struck on Monday after Federal Reserve Chair Janet Yellen’s comments enhanced expectations for a near-term US rate hike.
The euro was at $1.1134, putting further distance between a 2-1/2-month low of $1.1097 touched on Monday.
US economic data
US data overnight saw personal income-related and housing indicators come in strong, while the Chicago manufacturing PMI and consumer confidence data proved disappointing.
The Australian dollar surged 0.9 per cent to $0.7295 helped by stronger-than-expected first quarter economic growth, which pushed the Aussie further away from a three-month low of $0.7145 touched last week.
Sterling was on the defensive, last trading little changed at $1.4486 after dropping more than one per cent on Tuesday, after polls showing those who support Brexit may be increasing.