Asia Stocks Fall With Oil, Copper as Yuan Weakens; Aussie Jumps 

asian markets
  • Crude oil sinks below $49 before OPEC meets Thursday
  • Korean bonds rally as export slump weighs on the won

Asian stocks retreated with commodities and the yuan weakened as Chinese manufacturing data pointed to lackluster 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 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 U.S. are also due 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. Reports Tuesday showed American consumer spending climbed in April by the most in almost seven years, while confidence fell.

“U.S. 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 Ltd. “Last night did not provide that, with most coming in largely in line with what the market was expecting.”

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. U.S. figures are likely to show factory activity barely expanded in May, a Bloomberg survey shows. Australia’s gross domestic product rose 1.1 percent in the first quarter from the prior three months, a bigger gain than economists forecast.

Stocks

The MSCI Asia Pacific Index fell 0.1 percent as of 2:24 p.m. Tokyo time, after climbing 3.3 percent over the last five trading days. Japan’s Topix index fell 1.2 percent and Australia’s benchmark lost 0.9 percent, while benchmarks in Hong Kong and Shanghai were little changed.

Softbank Group Corp. climbed to its highest in more than a month in Tokyo after announcing plans to sell at least $7.9 billion of its stake in Alibaba Group Holding Ltd.

Futures on the S&P 500 were little changed, after losses among energy producers kept the U.S. benchmark in negative territory on Tuesday. Contracts on the U.K.’s FTSE 100 Index declined 0.2 percent.

Currencies

The Bloomberg Dollar Spot Index fell 0.2 percent, after a 3.7 percent 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 percent, while the chance of a move by July roughly doubled to 54 percent, Fed Funds futures show. The euro weakened 0.1 percent versus the greenback before a European Central Bank policy meeting on Thursday.

The yuan dropped 0.2 percent, closing to within 0.1 percent of a five-year low. It slumped 1.5 percent in May, the biggest loss since an August devaluation, and exchange-rate policy may be on the agenda when the U.S. 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 Ltd. “The PBOC may also want to let the currency follow market forces to weaken ahead of the U.S.-China economic dialogue later this month.”

Australia’s dollar strengthened 0.6 percent. 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 Ltd. New Zealand’s currency rose 0.3 percent after a gauge of the nation’s terms of trade increased by more than economists forecast.

The yen strengthened 0.9 percent, after sliding 3.8 percent in May. The move was sparked by profit-taking on bullish dollar positions, according to Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management.

Commodities

West Texas Intermediate crude fell 0.8 percent to $48.71 a barrel, after climbing for a fourth month in May. The Organization of Petroleum Exporting Countries 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 Tuesday.

Copper declined 1.5 percent in London, while zinc and lead were down at least 0.8 percent. Gold was little changed, after sliding more than 6 percent in May.

Bonds

Japan’s 20-year bonds declined, pushing their yield up by one basis point to 0.255 percent, 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 1.44 percent, below the Bank of Korea’s record-low benchmark rate of 1.5 percent. Data 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.”

Source: Bloomberg

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