Asian Markets In Reverse As US Data Spark Economy Worries

Asian markets fell on Tuesday as traders feared signs of weakness in the US economy, even as the data raised hopes that the Federal Reserve will cut interest rates this year.

The losses came as energy companies were hit by a new drop in oil prices after OPEC and other major producers said they would begin increasing production before the end of the year, bringing an end to the period of cuts that had kept crude high.

Investors have turned nervous in recent weeks on concerns that the Fed will not cut interest rates until 2025 as inflation remains stubbornly above target and policymakers have warned against acting too early, insisting on seeing more evidence that prices are under control.

The Institute for Supply Management (ISM) on Monday released its manufacturing index showing US activity contracted for the second straight month in May.

The figures indicate that companies have been suffering from rising interest rates and weak consumer spending, among other things.

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“The ISM manufacturing data reaffirmed several prevailing economic trends: sluggish inflation, sluggish growth, and a tight labor market,” said Gary Pzigio of US bank CIBC Private Wealth.

“We should see higher odds of a rate cut later this year given interest rate futures,” he added.

While traders have recently viewed weak economic data as a positive sign, due to the fact that it gives the Fed room to cut interest rates, the latest news has raised concerns about the outlook for the economy.

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“Investors are alert to signs that the downward trajectory is accelerating,” added Ian Lingen and Phil Hartman of BMO Capital Markets.

The focus now is on the release of the closely watched non-farm payrolls numbers which are due on Friday and will provide a fresh glimpse into the labor market and economy.

Wall Street’s three major indexes were mixed, with big tech companies supporting the Nasdaq and S&P 500.

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But Asia faltered, with Tokyo, Shanghai, Sydney, Seoul, Singapore, Taipei and Wellington all entering negative territory. However, Hong Kong reversed its early loss to rise, while Manila also advanced.

Oil prices extended the more than three percent losses they suffered on Monday after OPEC said it would start increasing production later in the year and into 2025, after a long period of cuts.

The news came at a time when investors were already concerned about China’s ongoing economic problems, and figures show demand in the US appears weak.

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Strategists at HSBC Bank said in a comment: “OPEC+ has a history of surprising the market, and this time it was no different as the group revealed a roadmap to start increasing production in 2025.”

“How OPEC+ will emerge from the complex set of cuts…remains one of the biggest questions for the oil market.

“In our view, the agreement provides some clarity for the next 19 months, but questions remain including how to unwind the remaining cuts after the end of 2025.”

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Tokyo – Nikkei 225: down 0.5% to 38749.25 (break)

Hong Kong – Hang Seng Index: rose 0.3 percent to 18,460.50

Shanghai – Composite: Decreased by 0.3 percent to 3,067.81

USD/JPY: rose to 156.41 from 156.21 yen on Monday

EUR/USD: rose to $1.0906 from $1.0903

Pound/Dollar: rose to $1.2805 from $1.2802

EUR/Pound: rose to 85.17 from 85.14 pence

WTI: fell 0.6% to $73.75 per barrel

Brent North Sea crude fell 0.6 percent to $77.93 a barrel

NEW YORK – S&P 500: up 0.1% to 5,283.40 (close)

London – FTSE 100: down 0.2 percent to 8,262.75 (close)


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