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Asian shares slide as weak China, Japan manufacturing data add to Fed worries

Published 02/28/2018, 02:17 AM
© Reuters. FILE PHOTO: A man walks past an electronic stock quotation board outside a brokerage in Tokyo

By Swati Pandey

SYDNEY (Reuters) - Asian shares extended losses on Wednesday as weak Chinese and Japanese manufacturing data revived worries about global growth amid anxiety over faster rate rises in the United States.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped more than 1 percent, its biggest daily percentage drop since Feb.9 when world financial markets were battered by concerns U.S. inflation is picking up.

The index is now down nearly 5 percent in February.

Japan's Nikkei stumbled 1 percent on a slightly firmer yen.

China's blue-chip CSI300 skidded 0.6 percent while Shanghai's SSE (LON:SSE) Composite fell 0.8 percent and Hong Kong's Hang Seng index declined more than 1 percent.

In an indication of the dour mood, S&P E- Mini futures slipped 0.1 percent while FTSE futures were off 0.6 percent.

Asian markets had opened mildly lower but selling intensified after data showed growth in China's manufacturing sector in February slowed more than expected to the weakest in over 1-1/2 years.

Growth in China's services industry also slowed, suggesting the key sector was starting to display signs of fatigue.

The weakness was driven by disruption due to the Lunar New Year holidays and curbs to factory output from tougher pollution rules, but there are worries of a bigger loss in momentum.

Julian Evans-Pritchard, senior China Economist at Capital Economics, said the "the risk is still that the economy fares worse this year than is generally expected."

Some analysts cautioned the timing of the long holiday may have skewed the activity readings.

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In Japan, the world's third-largest economy, industrial output in January took its biggest tumble since a devastating earthquake in March 2011, highlighting a weakening in demand and a build up of inventory.

Growth in India's factory activity slowed too in February.

Sentiment across financial markets was already sour after Fed's Jerome Powell gave an upbeat view of the U.S. economy on Tuesday and said recent data had strengthened his confidence on inflation.

When asked about likely catalysts for more than three rate hikes in 2018, he said each member would write a new "dot plot" rate path ahead of the March meeting and that he wouldn't want to prejudge that outcome.

Rate futures fell following Powell's remarks as traders began pricing in about a one-in-three chance of a fourth hike this year.

Fears of faster U.S. rate hikes have caused anxiety that other central banks will start to tighten policy and raise borrowing costs. That would in turn hurt corporate earnings, clouding the outlook for what had been expected to be another solid year of global economic growth.

"Today's comments appear to open the door for others on the (Fed) Committee to revise their forecast as they see fit, and that Powell himself may be inclined to look for four hikes this year," JPMorgan (NYSE:JPM) economist Michael Feroli said in a note.

The Fed moved three times in 2017 and is seen as certain to do the same or more this year, with the first move expected as early as March.

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CURRENCIES

The dollar held on to gains after rallying against most major currencies on Tuesday.

It hovered near a recent 1-1/2 month top against the Australian dollar and held near a three-week high on the euro at $1.2221.

However, it did not fare well against the Japanese yen, a perceived safe haven. The dollar was last down 0.2 percent at 107.10 yen.

Dollar bulls were wrongfooted after the Bank of Japan announced it would trim the amount of super long Japanese government bonds it offered to purchase at its regular debt-buying operation.

Analysts are predicting a stronger yen this year despite faster U.S. rate rises, although speculators and Japanese retail investors have built huge short positions in yen futures setting the scene for a massive shakeout.

In commodities, oil prices extended declines on weak output data from China and Japan and as an industry data showed an increase in U.S. crude stockpiles.

Brent crude futures fell 40 cents to $66.23 a barrel, while U.S. crude was last down 33 cents at $62.68.

Spot gold eased to $1,317.61 an ounce, not far from Tuesday's $1,313.26 which was the lowest in three weeks.

(This version of the story has been refiled to add dropped word in first paragraph)

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