Signs of continued recovery in China’s services sector helped Asian markets flick into positive territory, reversing early declines after Wall Street posted its biggest one-day drop in a month.
A privately-prepared survey on China’s services sector climbed higher into expansionary territory in March, which helped pull the overall composite reading, which includes activity in manufacturing sector, back over the expansionary threshold of 50 points.
China’s Shanghai Composite was up 0.1 per cent and the technology-focused Shenzhen Composite gained 0.4 per cent. Hong Kong’s Hang Seng was up 0.3 per cent.
Japanese stocks were fighting to end one of their longest losing streaks in the era of Abenomics as the US dollar fell to less than Y110 for the first time in 17 months.
After dipping into negative territory, the Nikkei 225 recovered after the Chinese PMI data to rise 0.2 per cent higher, while the broader Topix was up 0.1 per cent.
If the Nikkei does end lower today, a seventh-straight decline, it will equal the longest losing streak for the benchmark since late 2012, when Shinzo Abe was making his run for the prime minister’s office, vowing to turn Japan’s economy round with his three policy “arrows”.
The yen hit Y109.95 per dollar during the US trading session on Tuesday, its highest level since October 31, 2014 when the Bank of Japan boosted the size of its asset stimulus programme. It was sitting 0.1 per cent lower at Y110.49 in Asian trade today.
Analysts at Capital Economics have singled out two possible reasons for the yen’s strength – renewed demand for haven assets, and speculative positioning – but reckons “neither is entirely satisfactory” at explaining the yen’s resilience.
“What is certain is that the strength of the yen is bad news for the Japanese economy as well as for local equities. The latest Tankan survey confirmed that conditions faced by manufacturers have deteriorated sharply. The Bank of Japan is also still struggling to gain traction in its attempts to lift inflation,” Capital Economics said.
Oil prices were ticking higher on Wednesday on renewed hopes major producers would reach an agreement to freeze output. Brent crude, the international benchmark, was 1.7 per cent higher at $38.52 a barrel, while West Texas Intermediate, the US marker, was 2.7 per cent higher at $36.87.
That was propelling energy stocks in Australia, with the sector up 2.9 per cent versus a 0.4 per cent decline for the broader S&P/ASX 200.
It was a rough night for Wall Street, as the S&P 500 dropped 1 per cent, for its biggest one-day fall since March 8, and the Nasdaq Composite shed as much. Data showed the trade deficit widened more than expected in February, which prompted a number of investment banks to trim their forecasts for economic growth in the March quarter.
“What US equities do next will play a bigger than usual role in FX (and rates) markets. If a cautious risk-friendly mood persists, I can’t see the fall in US rate expectations we have seen over the last couple of weeks persisting,” said Kit Juckes at Société Générale.
Cautious remarks last week from Janet Yellen, the Federal Reserve chair, have stood as the most recent and powerful influence over the US interest rate outlook, undermining commentary from more hawkish policymakers that briefly had markets thinking the central bank may not have entirely abandoned the four quarter of a percentage point rate rises it pencilled in last December.
Gold, which is sensitive to interest rate expectations, was 0.2 per cent lower at $1,229.41 an ounce today, after a 1.3 per cent jump on Tuesday. The dollar index, a measure of the US currency versus a basket of global peers, was 0.1 per cent higher again today at 94.709.
That slight lift in the greenback weighed on all Asian currencies bar the yen on Tuesday. Worst off was the Australian dollar, which fell 0.8 per cent, but it recovered a quarter of that amount on Wednesday at $0.7559 following the China data.
The Reserve Bank of Australia kept interest rates on hold at its policy meeting yesterday, as expected, but warned that a stronger Aussie currency could “complicate the adjustment under way in the economy.” The Aussie initially surged to around its highest level in seven months, but began to tumble during the European session.
The Reserve Bank of India cut its benchmark interest rate at its policy meeting on Tuesday alongside other measures to ease liquidity in the financial market there, and kept the door open for further easing. The rupee was flat on Wednesday, but shed a quarter of a percentage point yesterday.