Asia stocks slip as China rally fades, pound drops

Tokyo - Asian stocks were lower as a rally in Shanghai sparked by better-than-expected manufacturing data lost momentum. The British pound dropped amid election concerns.

Chinese shares pared earlier gains while Japan’s Topix retreated.

The British pound dropped for the first time this week as a poll showed Theresa May’s Conservative Party may miss a majority.

Oil extended losses and iron ore futures slid to the lowest since early November, while the onshore yuan headed for the highest closing level since November.

Asian shares briefly turned higher as China’s official factory gauge held up, adding to signs the world’s second-largest economy has maintained some of its first-quarter momentum. Data from Japan showed industrial output rebounded in April as overseas demand continued to support the nation’s economic recovery.

While equity benchmarks across the world have posted repeated records this year, potential headwinds to global growth remain.

Treasury yields slid on Tuesday after Federal Reserve Governor Lael Brainard said soft inflation could cause her to reassess the path forward for monetary policy should it linger.

Fed policy makers lifted rates in March and have pencilled in two more 2017 rate increases, and investors expect the first of those to come in June.

Elections in the UK, Germany and Italy are looming as Brexit negotiations begin. The Times of London published a YouGov poll showing that the ruling Conservative may lose 20 seats and their majority in parliament. Meanwhile, US President Donald Trump is ratcheting up a dispute with Germany and battling to implement spending and tax-cut plans.

Fed Bank of St. Louis President James Bullard said on Tuesday the Trump administration will need to deliver on the policy expectations that have driven the stock market higher.

Here are some of the key events coming up:

The euro-area’s preliminary headline inflation rate will come Wednesday. More Fed officials will be speaking as the FOMC’s June 13 to 14 meeting approaches. Robert Kaplan will be in New York on Wednesday.

The US jobs report on Friday may bolster the case for a rate hike, with a gain of 180 000 positions expected.

Brazil’s central-bank decision on Wednesday will probably see a cut of 75 to 100 basis points from the current 11.25%, according to economists. The EIA is due to release its monthly supply reports on Wednesday.

Here are the main movers in markets:

Stocks

The Shanghai Composite was up less than 0.1%, nearly wiping out an earlier gain of 1.1%. The manufacturing purchasing manager’s index remained at 51.2 for a second straight month in May, compared with a median estimate of 51 in a Bloomberg survey of economists.

Hong Kong’s Hang Seng fell 0.1%, while the Hang Seng China Enterprises Index also slipped 0.1%.

Japan’s Topix fell 0.3%, following two days of gains. Australia’s S&P/ASX 200 rose 0.2%, while South Korea’s Kospi added 0.1%. Futures on the S&P 500 rose less than 0.1%.

The benchmark index slipped 0.1% on Tuesday, retreating for the first time in eight days. The Nasdaq 100 Index advanced for an eighth day to an all-time high.

The Stoxx Europe 600 Index declined a fourth day on Tuesday as data showed euro-area economic confidence fell for the first time this year.  

Currencies

The pound dropped 0.3% to $1.2821. The euro fell 0.1%. The yen weakened 0.2% to 111.10 per dollar after rising 0.4% on Tuesday. The South Korean won strengthened 0.4%.

The onshore yuan climbed 0.2%, poised for its highest closing level since November. The Bloomberg Dollar Spot Index rose 0.1%, after trading little changed in the previous two sessions.

Commodities

Iron-ore futures in Dalian fell 4% to 436 yuan a ton, the lowest since November 7. Gold fell 0.2% to $1 260.31 an ounce, extending a 0.4% loss on Tuesday. Oil dropped 0.5% to $49.39 a barrel after retreating 0.3% in the previous session.

Opec and Russia’s deal last week to extend output limits through March was met with a selloff as it didn’t include deeper cuts, a plan for the rest of 2018 or a new ally.

Bonds

The yield on 10-year Treasuries rose one basis point to 2.22%, after declining four basis points in the previous session. Australia 10-year yields fell less than one basis point to 2.39%.