Asian shares weaken on global growth worries, Japan outperforms

SYDNEY, May 12 (Reuters) – Most Asian stock markets were muted on Friday and the dollar held on to gains from safe-haven flows, after soft economic data from the United States and China fueled concerns about a global slowdown.

Sentiment seemed to lighten up a bit as European markets open. Pan-region Euro Stoxx 50 futures rose 0.3%, Nasdaq futures rose 0.3% and S&P 500 futures were 0.2% higher.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) fell 0.6% and was on course for a 1.2% weekly decline, weighed down by a series of data from China that pointed to a sluggish economic recovery after the lifting of covid restrictions.

However, Japanese shares fared better, with the Nikkei (.N225) climbing 0.9% to its highest level since November 2021, as investors cheered announcements of increased shareholder returns during the earnings season.

China’s blue chips (.CSI300) fell 1.1% and looked set to lose 1.7% for the week, while Hong Kong shares (.HSI) fell 0.7% on the day.

China’s economic recovery appears to be losing steam, with new bank lending falling sharply in April, consumer prices rising at their slowest pace in more than two years and imports unexpectedly falling, driving a drop in commodity prices from copper, iron ore to oil.

Data showed U.S. jobless claims jumped to a 1-1/2-year high last week, while producer prices rose by the smallest annual increase in more than two years, suggesting a potentially sharper slowdown in the world’s largest economy.

However, the data gave confidence that the Federal Reserve is almost certain to pause rate hikes at its June board meeting, with futures markets continuing to price in cuts of around 78 basis points by the end of the year.

“It’s kind of a messy backdrop for equity markets and investment markets,” said Shane Oliver, chief economist at AMP in Sydney, noting the weaker global growth and the return of banking concerns.

“The silver lining is that inflationary pressures are easing, taking pressure off central banks, despite the Bank of England continuing to hike.”

Bank fears reverberated overnight. PacWest ( PACW.O ) again led declines in U.S. regional banks with a sharp 23% drop overnight, after it reported deposits fell 9.5% last week.

Shares of major US banks were also lower after the US Federal Deposit Insurance Corporation (FDIC) said big lenders would bear the cost of replenishing the deposit insurance fund caused by recent bank failures.

That dragged the Dow ( .DJI ) lower, although the Nasdaq ( .IXIC ) added 0.2%, supported by a 4.3% jump in Alphabet Inc ( GOOGL.O ) on the launch of more artificial intelligence products.

Uncertainty about raising the US debt ceiling persisted. A meeting between US President Joe Biden and top lawmakers scheduled for Friday has been postponed until early next week, with the IMF warning that a US default would have “severe consequences” for the US economy.

The US dollar benefited from safe-haven flows amid growth and banking concerns, holding on to a 0.6% overnight gain at 102.02 against a basket of currencies.

The euro fell to $1.0925, just a touch above a one-month low, and the pound nursed losses to $1.2524, nearing a one-week low.

Treasury yields were slightly lower in Asia, after longer-term yields fell further overnight on soft data. Benchmark 10-year bonds were 2 basis points lower at 3.375%, while two-year yields were also 2 bps lower at 3.883%.

The Bank of England stuck to the script by raising its key interest rate by a quarter of a percentage point to 4.5% on Thursday. However, it vowed it would “stay the course” to curb the highest inflation of any major economy.

Oil is set to fall for a fourth consecutive week. U.S. crude futures were down 0.4% at $70.56 a barrel, while Brent crude was down 0.5% at $74.59 a barrel.

Gold prices were 0.2% lower at $2,011.41 an ounce.

Reporting by Stella Qiu; Editing by Kim Coghill

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