Asian markets struggle as post-BoJ rally wanes

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Asian markets outside China were struggling for direction on Tuesday, following a weak night for Wall Street as investors weighed weak global manufacturing data against a backdrop of more central bank stimulus.

Japan’s Nikkei was flat in mid-morning trade, but had been as much as 1 per cent weaker early in the session. The benchmark has rallied a total of 4.8 per cent in the two sessions since the Bank of Japan surprised the market by adopting negative interest rates.

Hong Kong’s Hang Seng was up 0.1 per cent, while Australia’s S&P/ASX 200 was down 0.4 per cent ahead of its central bank’s interest rate decision.

On the Chinese mainland, the Shanghai Composite was 1.7 per cent higher and the tech-focused Shenzhen Composite was up 2.7 per cent.

On Monday, Asian markets managed to overcome a bout of weak economic data, and remained buoyant in the wake of the BoJ’s decision to cut the rate on excess reserves to minus 0.1 per cent from 0.1 per cent.

A number of readings on manufacturing activity yesterday either missed expectations or fell into contractionary territory. January also proved a trying month for manufacturers in the US, with a stronger US dollar weighing on the sector.

Reflecting on the weak manufacturing data across the globe, HSBC co-head of Asia economics research Frederic Neumann said the worry is that these trends may ultimately weigh on labour markets, and therefore curb consumption.

“Services, in the end, are unlikely to decouple fully from manufacturing, with the drag becoming more severe the longer the industrial downturn endures. The relative strength in Asian real retail sales growth, therefore, may not persist.”

In oil markets, Brent crude, the international benchmark was down 1.1 per cent to $33.85 a barrel, while West Texas Intermediate, its US counterpart, was down 1.4 per cent to $31.17, following sharp falls for both benchmarks on Monday.

Elsewhere in commodities, gold was down 0.1 per cent at $1,127.63 an ounce.

The dollar index, a measure of the US currency versus a basket of peers, was flat at 98.966 this morning. The greenback is up 0.3 per cent this year, and up 4.7 per cent over the past 12 months, which has increased pressure on US exporters and manufacturers.

South Korea’s won was 0.1 per cent weaker this morning, after inflation data cooled in January from the previous month and came in weaker than expected. That follows data yesterday which showed the largest year-on-year drop in exports since 2009.

The Australian dollar was 0.1 per cent weaker at $0.7110 ahead of the Reserve Bank of Australia’s first policy decision for the year. The central bank is expected to keep interest rates unchanged at a record low 2 per cent, but has had the past two months to process, on top of the usual economic data, the Federal Reserve’s interest rate rise in December, the BoJ’s surprise easing on Friday, recent hints from the European Central Bank at more stimulus as early as March, and volatility in China’s financial markets.

The yield on benchmark Australian government 10-year bonds was flat at 2.622 per cent, but have come in from levels close to 3 per cent in mid-November as investors tilted toward the perceived safety of government debt amid this year’s market sell-off, and as a handful of central banks have eased monetary policy or look set to boost their efforts.

The Japanese government 10-year bond yield was down 0.9 basis points at 0.046 per cent this morning. It had hit a record low 0.034 per cent on Monday.

At its daily fix, the People’s Bank of China set the reference rate around which the renminbi is allowed to trade 0.04 per cent stronger at Rmb6.5510 per dollar. This is the biggest strengthening in just over a fortnight, and reverses yesterday’s 0.04 per cent, which was likely spurred by a drop in the yen as the BoJ eased monetary policy. Since December, the PBoC has been setting the renminbi’s value against a basket of major currencies, rather than only the US dollar.

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