Asia stocks subdued as China data disappoints

Wednesday, 15 November 2017 00:10 -     - {{hitsCtrl.values.hits}}

  • Asia shares-ex Japan dip 0.17%, Nikkei tries to bounce
  • China industrial output, retail sales miss forecasts
  • Currencies mostly steady, dollar aided by rising yields

Sydney (Reuters): Asian stocks put in a subdued performance on Tuesday as Chinese economic data disappointed and investors pondered whether a marked flattening in the US yield curve might be a harbinger of a future slowdown there.

China’s retail sales rose 10% on the year in October, while industrial output grew 6.2%. Both came in under market forecasts and briefly hit the Australian dollar, which is often used as a liquid proxy for China wagers.

The immediate damage was limited in stocks with the blue-chip CSI300 index off 0.4% and EMini futures for the S&P 500 down 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.17% after two sessions of declines, while Australia fell 0.9%.

Japan’s Nikkei managed to recoup 0.4% after four sessions of losses, but spreadbetters pointed to softer starts for the main European bourses.

Investors were waiting for any signs of compromise on US tax policy after US Senate Republicans on Thursday unveiled a plan that would cut corporate taxes a year later than a rival House of Representatives’ bill.

Also on the menu are no fewer than 13 central bank speakers, including the heads of the US, European, British and Japanese central banks.

On Wall Street, a sharp drop in General Electric shares was offset by gains in high dividend-paying sectors including consumer staples and utilities.

The Dow rose 0.07%, while the S&P 500 added 0.10% and the Nasdaq 0.1%.

General Electric slashed its dividend by 50% and cut its profit forecast while unveiling a plan that narrowed its focus on aviation, power and healthcare. Currency markets were mostly quiet, with the dollar barely changed against a basket of counterparts at 94.488. The euro was up a slim 0.05% at $ 1.1671. Sterling hovered at $ 1.3117, having fallen as far as $ 1.3063 on Monday amid concerns British Prime Minister Theresa May was losing her grip on power.

May’s blueprint for Britain’s departure from the EU faces a crucial test starting on Tuesday, when lawmakers try to win concessions on legislation to sever ties.

The dollar was steady at 113.67 yen after bouncing from 113.25 support overnight.

Eying the yield curve

A rise in US bond yields has generally made it more attractive to buy dollars with money borrowed in low-rate currencies like the yen and Swiss franc. Figures out on Monday from the Commodity Futures Trading Commission showed the speculative net short position in the Japanese yen had blown out to the largest since January 2014 and in the Swiss franc to the biggest since December 2016.

Yields on Treasury two-year notes hit a fresh nine-year high on Monday, shrinking the spread to 10-year debt to near its smallest since 2007.

The trend in part reflects market wagers the US Federal Reserve’s plans to raise rates in December and two or three times next year will prove all too successful in restraining inflation by ultimately slowing the economy.

Tom Porcelli, chief US economist at RBC Capital Markets, noted that a glance at history suggested a flatter, and particularly an inverted, yield curve was “compelling as an early warning sign” of recession.

However, history also showed that the average amount of time it took the curve to go from flat to inverted was 18 months and the average time to go from inverted to recession was 18 months. “So even if we take the inverted curve as gospel, it suggests the expansion still has multiple years in it,” said Porcelli. In commodity markets, gold was steady at $ 1,276.50 an ounce. The metal has stayed broadly within $ 15 an ounce of its 100-day moving average, currently at $ 1,277 an ounce, for most of the last month. Oil prices held in a tight range as support from Middle East tensions and record long bets by fund managers balanced rising US production.

US crude was off 14 cents at $ 56.62, while Brent crude futures eased 21 cents to $ 62.95 a barrel.

Bourse falls for 4th straight session

Reuters: Shares fell for a fourth straight session on Tuesday, posting their lowest close in more than six weeks, on continued worries over 2018 budget policies which imposed taxes on cash-rich telecom and banking sectors to boost revenue.

The Colombo stock index ended 0.82% weaker at 6,457.90, its lowest close since 29 September.

“Until the market digests the budget policies fully, there could be some decline,” said Hussain Gani, deputy CEO at Softlogic Stockbrokers.

“Some areas like tax on telecom towers need to be clarified.” Foreign investors, however, net bought shares worth Rs. 369 million ($ 2.40 million), extending the net foreign inflow into equities to Rs. 19.1 billion so far this year.

Finance Minister Mangala Samaraweera imposed new taxes on motor vehicles, telecoms, banks and liquor in a bid to boost revenues in its 2018 budget outlined on Thursday, as the budget deficit for the current year slipped to 5.2% of the gross domestic product.

Samaraweera imposed taxes on telecom towers and text messages, and introduced a debt repayment levy of 20 cents per 1,000 rupee bank transaction with effect from 1 April next year.

Analysts said the release of the government gazette notification on new Inland Revenue Act will also weigh on the market over the next few days.

Turnover was Rs. 670.3 million on Tuesday, less than this year’s average of around Rs. 954.6 million.

Top private lender Commercial Bank of Ceylon fell 2.3%, while market heavyweight and top conglomerate John Keells Holdings closed 2.1% weaker.