Asia Stocks Down on Inflation, Growth Concerns; RBA Hits Pause

Asian stocks slipped on Tuesday as investors grappled with inflation concerns in the wake of the surprise cuts to the OPEC+ group’s oil output targets, while treasury yields fell after frail U.S. manufacturing data renewed anxiety about the economy.

An announcement on Sunday of output target cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, propelled oil prices higher and complicated the inflation outlook. Brent crude was last up 0.44% to $85.3 per barrel, after jumping over 6% overnight.

Investors were also assessing Monday’s economic data, which showed U.S. manufacturing activity in March slumped to its lowest level in nearly three years as new orders plunged, and analysts said activity could decline further due to tighter credit conditions.

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

“Manufacturing is one of the most rate-sensitive sectors of the economy as goods like autos are primarily bought on credit. There continues to be encouraging news on goods inflation.”

In early European trades, the pan-region Euro Stoxx 50 futures were up 0.33%, German DAX futures advanced 0.39% and FTSE futures rose 0.35%. U.S. stock futures, the S&P 500 e-minis ESc1, were down 0.07%.

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

Japan’s Nikkei stock index rose 0.3%. In Sydney, the stock market edged up 0.2% while the Australian dollar fell after the Reserve Bank of Australia paused its tightening cycle following 10 straight rate hikes.

China’s blue-chip CSI300 Index was little changed by the lunch break, while the Shanghai Composite Index gained 0.22%.

Hong Kong’s Hang Seng index dropped 1.1%, led by technology stocks, as elevated Sino-U.S. tensions dented investor sentiment.

China warned U.S. House Speaker Kevin McCarthy on Tuesday not to “repeat disastrous past mistakes” and meet Taiwan President Tsai Ing-wen who is visiting the United States.

On Monday, gains in energy shares helped lift world stock indexes following the surprise OPEC+ group’s new production cuts that could push oil prices toward $100 a barrel. The S&P 500 energy sector index surged 4.9%.

However, the prospect of higher oil costs added to inflation worries on Wall Street just days after evidence of cooling prices raised expectations that the U.S. Federal Reserve might soon end its aggressive monetary tightening campaign.

The Dow Jones Industrial Average rose 0.98%, the S&P 500 gained 0.37% and the Nasdaq Composite dropped 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 U.S. economy may be headed for recession.

Treasury yields retreated after the U.S. manufacturing data, which increased expectations for some investors the Fed will cut rates later this year as the economy slows. Separate data also showed U.S. construction spending weakened in February.

The yield on benchmark 10-year Treasury notes was last at 3.4151% compared with its U.S. close of 3.432% on Monday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.9676% compared with a U.S. close of 3.98%.

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

The focus on currencies in Asia fell on the RBA, which paused its tightening streak as financial markets had anticipated, though economists were more divided on the outcome.

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

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

The European single currency remained flat on the day at $1.0893, having gained 0.5% in a month while the dollar rose 0.2% against the Japanese yen at 132.68.

Gold was slightly lower. Spot gold was traded at $1980.59 per ounce. [GOL/]

(Reuters)

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