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Tokyo - Asian stocks retreated with commodities and the yuan weakened as Chinese manufacturing data pointed to lacklustre growth in the world’s second-largest economy. The Japanese yen strengthened and Australia’s dollar surged to a two-week high.
The MSCI Asia Pacific Index snapped a five-day winning streak as Japan’s Topix index retreated from a one-month high. Copper fell by the most in about three weeks, while crude oil slipped below $49 a barrel before an Organisation of Petroleum Exporting Countries (OPEC) meeting on Thursday.
The yuan approached a five-year low reached in early January, when concern about China’s currency policy roiled global financial markets.
The yen and the Aussie were the best-performing major currencies, with the latter having strengthened after economic expansion beat estimates. South Korea’s bonds rallied after disappointing trade data.
China’s purchasing managers’ indexes for May added to evidence that growth remains subdued after the economy expanded last year at the slowest pace in more than two decades.
Manufacturing gauges for the euro area and the US are also due on Wednesday, with the latter likely to be closely watched following a surge in speculation that the Federal Reserve will raise interest rates as early as this month. Polls showing an increased risk that the UK will vote to leave the European Union in a referendum this month are also making investors wary.
"We’re seeing some people take profit," said Hiroyuki Mino, a senior strategist at Mizuho Securities. "Brexit fears are leading to risk-off movements given the uncertainty on its impact to the world economy."
China’s official manufacturing purchasing managers index for May was 50.1, just above the dividing line between improvement and deterioration. A comparable indicator for Japan was the lowest in at least three years and Prime Minister Shinzo Abe said he will delay a planned increase in the country’s sales tax by more than two years.
US figures are likely to show factory activity barely expanded in May, a Bloomberg survey shows. Australia’s gross domestic product rose 1.1% in the first quarter from the prior three months, a bigger gain than economists forecast.
Stocks
The MSCI Asia Pacific Index fell 0.2% in London time, after climbing 3.3% over the last five trading days. Japan’s Topix index fell 1.3% and Australia’s benchmark lost 1%, while benchmarks in Hong Kong and Shanghai were little changed.
Softbank Group climbed to its highest in more than a month in Tokyo after announcing plans to sell at least $7.9bn of its stake in Alibaba Group Holding.
Futures on the Euro Stoxx 50 Index were little changed, as were contracts on the S&P 500. Reports on Tuesday showed US consumer spending climbed in April by the most in almost seven years, while confidence fell.
"US data is incredibly important at the moment as the market is looking for anything that may upset an increasingly expected July rate hike," said Angus Nicholson, a markets analyst in Melbourne at IG. "Last night did not provide that, with most coming in largely in line with what the market was expecting."
Currencies
The Bloomberg Dollar Spot Index fell 0.2%, after a 3.7% surge in May that marked its biggest monthly gain since September 2014. The odds of the Federal Reserve raising interest rates in June almost tripled last month to 34%, while the chance of a move by July roughly doubled to 54%, Fed Funds futures show.
The euro weakened 0.1% versus the greenback before a European Central Bank policy meeting on Thursday.
The yuan dropped 0.2%, closing to within 0.1% of a five-year low. It slumped 1.5% in May, the biggest loss since an August devaluation, and exchange-rate policy may be on the agenda when the US and China hold an annual economic meeting next week.
"Today’s PMI reports and the recent dollar strength both point to further weakening pressure on the yuan," said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia. "The PBOC may also want to let the currency follow market forces to weaken ahead of the US-China economic dialogue later this month."
Australia’s dollar strengthened 0.5%. The GDP report "reduces the risk" of the central bank adding to May’s interest-rate cut anytime soon, said Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank.
New Zealand’s currency rose 0.3% after a gauge of the nation’s terms of trade increased by more than economists forecast.
The yen strengthened 0.7%, after sliding 3.8% in May. Prime Minister Abe told lawmakers he will "mobilize fiscal policy to achieve strong growth."
"Abe has already decided on the sales tax and he said he will come up with more fiscal stimulus," said Roy Teo, a senior currency strategist in Singapore at ABN Amro Bank NV.
"From that perspective perhaps the market is speculating that with more fiscal stimulus in the pipeline then the BOJ may delay further easing policies. If the BOJ delays then it’s positive for the yen."
Commodities
West Texas Intermediate crude fell 0.9% to $48.67 a barrel, after climbing for a fourth month in May. The OPEC is unlikely to reach an agreement limiting production at this week’s meeting in Vienna as the group sticks with Saudi Arabia’s strategy of squeezing out rivals, according to analysts surveyed by Bloomberg.
The global surplus that has caused prices to slump since 2014 is correcting itself, the oil minister of the United Arab Emirates said on Tuesday.
Copper declined 1.5% in London, while zinc and lead were down at least 1.1%. Gold was little changed, after sliding more than 6% in May.
Bonds
Japan’s 20-year bonds declined, pushing their yield up by one basis point to 0.255%, after the central bank scaled back purchases of super-long tenors in its debt-buying plan for this month. Notes due in 30 years and 40 years also declined.
South Korea’s three-year bond yield dropped six basis points to 1.445%, below the Bank of Korea’s record-low benchmark rate of 1.5%.
Data on Wednesday showed exports contracted for a 17th straight month, contributing to the smallest current-account surplus since June 2014, and Tuesday’s release of minutes from the central bank’s last policy meeting showed showed one of the seven board members saw the need for borrowing costs to be lowered in the "near term."
