Asia's stockmarkets slid toward a second month of losses in a row on Wednesday, and even the glittering Nikkei paused, as weak Chinese factory activity fed growing doubts about the post-pandemic recovery in the world's second biggest economy.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1% in early trade and is down 2.4% in a month where hopes for robust Chinese rebound have run dry.
Data showed Chinese manufacturing activity contracted faster than expected this month on weakening demand, with the official manufacturing purchasing managers' index down to 48.2 against a forecast of 49.4.
The yuan fell to a six-month low of 7.1090 per dollar after that and is down more than 2.6% on the month as indicators from output to industrial profits, retail sales and loan growth have missed forecast and in some cases slumped.
"There were concerns China's economic comeback could be so strong that it would complicate advanced economy central banks' fight against inflation," said Carol Kong, economist and currency strategist at the Commonwealth Bank of Australia.
"Fast forward to today, those expectations look misplaced."
The disappointment has filtered through to other China-sensitive assets. The Australian dollar is sliding towards a fourth consecutive monthly loss and at $0.6492 is barely above last week's seven-month lows.
Aussie stocks are eying their worst month since February with a 2.4% drop. A tourism-led rally for Thailand's baht and stock index has failed to arrive.
Hong Kong's Hang Seng is down 8% in May and fell 1.6% on Friday.
Even stocks in Asia's brightest market, Japan, took a breather on Wednesday. The benchmark Nikkei fell 0.8%, though that caps a 7.7% monthly gain that's driven the index above 31,000 to its highest levels in more than 30 years.
"Inflation triggered by structural labor shortages is forcing companies ... fundamentally rethink their pricing strategies, and there are clear signs that change is on the way," said Bank of America strategist Masashi Akutsu.
"If they can achieve double-digit returns on equity, this would bring the 1989 high within range. Based on these factors, we raise our end-2023 targets for Japanese stocks, to 2,300 for TOPIX and 32,500 for the Nikkei 225."
DEBT VOTE
Beyond Asia, the U.S. debt ceiling remains in focus, with markets hoping an agreement President Joe Biden struck with the top congressional Republican to suspend the United States' borrowing limit can pass through Congress in coming days.
The plan cleared a House committee overnight and is set for debate and passage on Wednesday, which would send it to the Senate where debate could stretch to the weekend.
Treasuries rallied after the initial deal was struck, on the expectation a U.S. default would be averted, but the market remains skittish as once authorised to borrow the Treasury is likely to issue lots of debt to replenish its coffers.
Benchmark 10-year yields dropped 12.4 basis points overnight and fell another 1.5 bps on Wednesday in Asian trade to 3.6808%. Yields fall when bond prices rise. Two-year yields were down 2.5 bps to 4.448% on Wednesday.
The drop in yields put a pause in what looks to be the U.S. dollar's best monthly rally since February. This month the euro is down about 2.8% on the greenback to $1.0706 and the yen is down about 2.5% to 139.83 per dollar and on Tuesday had hit a six-month low at 140.93.
Japan will closely watch currency moves and won't rule out any options, its top currency diplomat said on Tuesday, after financial authorities met in the wake of the yen's slide.
In commodity markets, growth jitters have benchmark Brent crude futures down 7.7% this month to $73.41 a barrel. Gold is off 2-1/2 year highs at $1,954 an ounce.
German inflation data is due later in the day. Australian inflation accelerated in April, data showed, and central bank governor Philip Lowe told lawmakers households should brace for pain ahead in the effort to contain rising prices.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
