SYDNEY (Reuters) – Asian stocks sank on Wednesday and bonds rallied as investor emotions soured over growing concerns about world growth with trade tensions between Washington and Beijing showing no signs of relief.
FILE PHOTO: A passerby passes by in front of a stock card outside of brokerage in Tokyo, Japan May 10, 2019. REUTERS / Issei Kato
MSCI's widest index of Asia-Pacific shares outside of Japan fell 0.5% after three straight days of winnings. Chinese stocks started at the back of the foot with blue chip CSI300 of 0.5%. Australian shares were 0.8% lower while Japan's Nikkei faltered 1.4%.
In an indication, US markets will fall again on Wednesday, the E-Minis for S & P 500 was 0.4% lower.
Risk aversion has increased globally in recent days, as fears of world decline occurred among disappointing macro data in large economies. Gains for Euro-skeptic parties in EU elections, as well as a snap survey in Greece and political unrest in Austria have added to the gloomy outlook.
Italy's dispute with the EU Commission over its budget is also a major overhang for the world market.
In Asia, the focus remains on the ongoing Sino-U's trade war. US President Donald Trump said on Monday that Washington was not yet ready to sign a deal with China. At the same time, he pushed Japan to reduce the trade balance with the United States.
Such concerns have led US 10-year dividends to fall about 10 basis points below the 3-month rate, an inversion that is usually seen as a leading indicator of a recession. The German Bund yields are also on a slippery slope.
"What I see as more consistent is that when the yield curve invades you, you get the central bank easing. So the issue of recession would be, the US would feel comfortable enough to avoid a recession?" Said Chris Rands, Sydney based interest portfolio manager at Nikko Asset Management.
"My reading of what is happening at the moment is that US economic data seems to flirt away, and the market is beginning to tell us that interest rates will end," added Rands.
U.S .. prices futures are pricing in two cuts of the Federal Reserve in the middle of next year to help tighten the country's economy.
Data in the week showed that a meter of US production activity fell unexpectedly in May from last month.
There are previously disappointing readings about US production and industrial production, adds Rands.
"That you have a little more noise around the commercial war now, while production is rolling over, makes people think things are a bit worse than they had expected," he said.
Analysts at Citi reckon criminal sanctions against China's Huawei and other technology companies, as part of the tariff string, could undermine global productivity growth.
"Technological rivalry is here to stay," says Citi analyst Johanna Chua in a note, adding that "it is difficult to be constructively risky in Asia at this time."
"We maintain a bias to be a long US dollar-Asia … As growth is likely to outweigh inflationary problems, we expect Asian central banks to continue to be on the accommodation side."
In currencies, activity was curbed .
The dollar index was flat at 97,937, well over a recent two-week review of 97,547.
The euro was also unchanged at $ .1,162 after two straight days of fall while British Pounds held $ 1,2656.
In the commodity markets, oil prices were suppressed on Wednesday, as the concerns of the Chinese and US trade wars could trigger a global economic downturn, despite the risk of lack of supply from US floods and political tensions in the Middle East. [O/R]
Brent crude was last from 45 cents at $ 69.66 a barrel, while US commodities eased 58 cents to $ 58.56 a barrel.