Asian share markets retreated on Tuesday as global investors began to question the strength of the U.S. economy following further weakening in manufacturing activity, raising concerns that the era of U.S. economic ‘exceptionalism’ might be coming to an end.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell by 0.1%, after U.S. stocks ended the previous session with mild gains. Despite the dip, the index remains up 1.6% so far this month. Australian shares dropped 0.21%, while Japan’s Nikkei stock index slid by 0.77%. Meanwhile, Hong Kong’s Hang Seng Index remained flat in early trade, and China’s CSI300 Index edged down by 0.16%.
The yield on benchmark 10-year Treasury notes slightly decreased to 4.4001%, compared with 4.402% at the U.S. close on Monday. The two-year yield, which is more sensitive to changes in traders’ expectations of Federal Reserve rate hikes, stood at 4.8184%, consistent with its U.S. close of 4.818%. On Monday, U.S. Treasury yields hit their lowest point in two weeks after the country’s manufacturing activity declined for the second consecutive month in May.
“The sharper move at the long-end is a sign that weaker manufacturing data is unlikely to shift the dial on Fed rate cuts near term, but is perhaps a signal of the market’s view of neutral interest rates as US economic exceptionalism fades,” commented Westpac economist Jameson Coombs in a note on Tuesday.
There are now 40 basis points of rate cuts priced into financial markets expectations by the end of 2024, Coombs added.
In Europe, investors anticipate the European Central Bank will cut the benchmark rate by 25 basis points to 3.75% on Thursday.
On Wall Street, the S&P 500 index inched up by 0.1%, the Dow Jones Industrial Average dipped by 0.3%, and the Nasdaq Composite rose by 0.6%.
In India, Prime Minister Narendra Modi is expected to secure a record-equalling third consecutive term in office when the 642 million votes cast in the world’s largest election are counted. Analysts predict the outcome will have a positive impact on India’s financial markets, driven by hopes of further economic reforms.
The dollar rose by 0.16% against the yen to 156.35 in Asian trading on Tuesday, still below its high this year of 160.03 in late April. The euro increased by 0.1% to $1.0912, having gained 0.65% over the past month, while the dollar index, which tracks the greenback against a basket of major currencies, was down at 104.
In commodities, U.S. crude dipped by 0.42% to $73.91 per barrel, and Brent crude fell to $78.05 per barrel. Both benchmarks had reached four-month lows on Monday after the Organization of the Petroleum Exporting Countries and allies, collectively known as OPEC+, decided to start unwinding some production cuts from October.
“Most commodity analysts had expected the production cuts to be maintained till the end of the year,” noted economists from the National Australia Bank (NAB).
Gold prices saw a slight increase, with spot gold trading at $2,350.73 per ounce.
As global markets
grapple with mixed economic signals, investors remain cautious, particularly in light of the shifting landscape of U.S. economic performance and its ripple effects across the globe. The ongoing uncertainty emphasizes the need for close monitoring of economic data and policy decisions in the coming months.