Asia stocks down on inflation, growth concerns; RBA hits pause

HONG KONG, April 4 (Reuters) – Asian shares fell on Tuesday as investors grappled with inflation worries in the wake of surprise cuts to the OPEC+ group’s oil production targets, while government yields fell after flimsy U.S. production data renewed fears about the economy.

An announcement on Sunday of cuts to production targets by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, drove oil prices higher and complicated the inflation outlook. Brent crude was last up 0.44% at $85.3 a barrel, after jumping more than 6% overnight.

Investors also weighed Monday’s economic data, which showed U.S. manufacturing activity in March fell to the lowest level in nearly three years as new orders plunged, and analysts said activity could slow further due to tighter credit conditions. read more

“A weakening trend has been in place since last May, but recent banking turmoil may have weakened confidence further,” ANZ analysts said in a note.

“Manufacturing is one of the most interest rate sensitive sectors of the economy as goods such as cars are mainly bought on credit. There continues to be encouraging news on commodity inflation.”

In early European trade, Euro Stoxx 50 futures were up 0.33% in the pan, German DAX futures were up 0.39% and FTSE futures were up 0.35%. US stock futures, the S&P 500 e-minis ESc1, fell 0.07%.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) was down 0.4%, reversing early gains.

Japan’s Nikkei share index (.N225) rose 0.3%. In Sydney, the stock market (.AXJO) rose as the Australian dollar fell after the Reserve Bank of Australia halted its tightening cycle after 10 straight interest rate hikes.

China’s blue-chip CSI300 Index (.CSI300) was little changed at the lunch break, while the Shanghai Composite Index (.SSEC) rose 0.22%.

Hong Kong’s Hang Seng index fell 1.1%, led by technology shares, as heightened Sino-US tensions dampened investor sentiment.

China warned US House Speaker Kevin McCarthy on Tuesday not to “repeat disastrous past mistakes” and meet Taiwan President Tsai Ing-wen, who is visiting the US. read more

On Monday, a rise in energy shares helped to lift the world’s stock indices after the surprising OPEC+ group’s new production cut, which could push oil prices towards $100 a barrel. The S&P 500 energy sector index (.SPNY) rose 4.9%.

But the prospect of higher oil costs fueled inflation worries on Wall Street just days after evidence of cooling prices raised expectations that the US Federal Reserve may soon end its aggressive monetary tightening campaign.

The Dow Jones Industrial Average (.DJI) rose 0.98%, the S&P 500 (.SPX) rose 0.37% and the Nasdaq Composite (.IXIC) fell 0.27%.

Market watchers have been trying to gauge how much longer the Fed may need to keep raising interest rates to cool inflation and whether the US economy may be headed for recession.

Treasury yields retreated after US manufacturing data raised expectations for some investors. The Fed will cut interest rates later this year as the economy slows. Separate data also showed that US construction spending weakened in February.

The yield on the benchmark 10-year Treasury note was last at 3.4151% compared with the US close of 3.432% on Monday.

The two-year yield , rising on traders’ expectations of higher Fed funds rates, hit 3.9676% compared with a US close of 3.98%.

The dollar reversed some losses but remained on the defensive after losing ground on Monday in the wake of weak US economic data.

The focus on currencies in Asia fell on the RBA, which halted the tightening streak that financial markets had expected, although economists were more divided on the outcome.

The Aussie was volatile and was last down 0.4% against the dollar at $0.6758.

The US dollar index, which tracks the greenback against a basket of currencies from other major trading partners, was last up at 102.16.

The European single currency was flat on the day at $1.0893, having risen 0.5% on the month while the dollar was up 0.2% against the Japanese yen at 132.68.

Gold was slightly lower. Spot gold traded at $1,980.59 per ounce.

Editing by Shri Navaratnam

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