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Stocks, dollar under pressure after soft US data

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TOKYO: Shares and the US dollar dipped on Monday while US bond yields slumped to five-month lows after soft US economic data hurt investor sentiment already frayed by worries over North Korea and coming French elections.


That dwarfed any relief for market players after the US Treasury department did not name China as a currency manipulator, avoiding an all-out confrontation on currencies between the world’s two largest economies.


S&P 500 mini futures declined 0.15 per cent to 2,324, edging near a six-week low of 2,317.75 touched in late March following US President Donald Trump’s defeat on healthcare reform.


MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.1 per cent in holiday-thinned trade, while Japan’s Nikkei fell as much as 0.6 per cent to hit a five-month low before ending up 0.1 per cent.


Most European share markets will be closed for Easter holidays.


A raft of Chinese economic data beat market expectations but did not produce notable market reactions as investors had been already optimistic following a recent string of positive China numbers.


China’s economy grew 6.9 per cent in the first quarter from a year earlier, a tad above economists’ forecast of 6.8 per cent.


However, mainland Chinese shares fell, with Shanghai Composite Index down 1.0 per cent at 3,212, risking a close below its 60-day average at 3,216, seen as an important support by investors and weighed by warning from top securities regulator to combat market misbehaviour.


US retail sales dropped more than expected in March while annual core inflation slowed to 2.0 per cent, the smallest advance since November 2015, from 2.2 per cent in February, data showed on Friday.


That helped to drive down the 10-year US Treasuries yield to 2.200 per cent, its lowest level since mid-November from around 2.228 per cent on Thursday before a market holiday on Friday.


The yield had risen above 2.6 per cent in December and again in March, from around 1.85 per cent before the US presidential election, on expectations of Trump’s stimulus.


But growing perception that Trump will struggle to push any tax cuts and fiscal spending programmes through the Congress has prompted unwinding of the “Trump” trade.


“At the moment, it is hard to see any factors that could drive up bond yields,” said Hiroko Iwaki, Senior Strategist at Mizuho Securities.


“And compared to US bond yields, which have given up much of their gains after the election, US share prices, having gone through a limited correction, look vulnerable given potential developments in North Korea or the French election,” she said.


Fed fund futures rose in price, now pricing less than a 50 per cent chance of a rate hike in its June 13-14 meeting for the first time in about a month.


Trump’s administration declined to name any major trading partner as a currency manipulator in a highly anticipated report on Friday, backing away from a key Trump campaign promise to slap such a label on China.


“Concerns about US-Sino trade frictions have eased for the time being,” said Naoki Tashiro, the president of TS China Research.


“But this is also thought to be a part of a barter, namely the US wants China to take tougher actions against North Korea in exchange,” he said.


There is no sign of easing in tensions over North Korea’s nuclear and missile programme after the reclusive country’s failed missile test on Sunday.


Trump’s national security adviser said on Sunday that the United States, its allies and China are working together on a range of responses to North Korea.


“In essence, North Korea made a provocation that would not transcend the US ‘red line’. But depending on how China will react, Trump could lose his patience,” said Makoto Noji, Senior Strategist at SMBC Nikko Securities.


Safe-haven gold gained as much as 0.8 per cent to hit a five-month high of $1,295.5 per ounce on continued concerns on tensions over North Korea.


The dollar slipped to as low as 108.13 yen, a five-month low and 0.4 per cent below its US levels. — Reuters


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