Asia stocks edge down after rally, focus back on fundamentals

Published: June 05, 2018 10:13:02 | Updated: June 06, 2018 15:50:09

People walk past an electronic board showing exchange rate between Japanese Yen and US Dollar outside a brokerage at a business district in Tokyo, Japan, August 9, 2017. Reuters/Files

Asian stocks pulled back on Tuesday as investors paused for breath after the previous day’s rally, although tech-inspired Wall Street gains supported broader sentiment as focus shifted to bullish economic fundamentals, away from trade concerns.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.1 per cent after surging 1.4 per cent the previous day.

Japan's Nikkei .N225 gained 0.2 per cent and South Korea's KOSPI .KS11 lost 0.15 per cent. Hong Kong's Hang Seng .HSI shed 0.2 per cent and the Shanghai Composite Index .SSEC was little changed.

Wall Street’s three major indexes rose overnight, led by a rally in tech stocks, pushing the Nasdaq to a record closing high.

Friday’s better-than-expected May US employment report has helped revive investor optimism about the world’s biggest economy, shifting the focus away from recent trade tensions.

“Strong U.S. data put fundamentals back in the spotlight, just as Italian political concerns were ebbing,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

Italy’s anti-establishment parties formed a coalition government on Friday to end three months of deadlock, averting potentially destabilising snap elections.

“The next focal point is the upcoming FOMC (Federal Open Market Committee) meeting and whether the Fed shows any indication of accelerating the pace of its rate hikes following the strong employment report,” said Ichikawa.

The Federal Reserve is scheduled to hold a two-day policy meeting starting on June 12.

With risk aversion ebbing in the broader markets, safe-haven government bonds were sold and their yields rose.

The 10-year US Treasury note yield US10YT=RR stood near an 11-day high of 2.946 per cent brushed overnight.

The yield had declined to a 1-1/2-month low of 2.759 per cent a week ago when Italian political concerns had soured investor sentiment.

The rebound in US yields lifted the dollar to a near two-week high of 109.990 yen JPY= and also helped slow the euro's gains against the greenback.

The euro was flat at $1.1695 EUR=, nudged off the 12-day peak of $1.1754 touched on Monday on the ebb in concerns towards Italy.

“It is premature to declare that euro area uncertainties are over. Questions remain around how the new Italian government will agree to prioritize its spending objectives, how Rome will interact with Europe and how the U.S.-European Union trade dispute will evolve,” wrote Brian Martin, head of global economics at ANZ.

The dollar index against a basket of six major currencies was little changed at 94.052 .DXY after edging down 0.2 per cent overnight.

The Australian dollar stood near a six-week high of $0.7666 AUD=D4 reached overnight on upbeat domestic data.

In commodities, oil prices edged higher after falling nearly 2.0 per cent in the previous session, but growing US production and expectations of higher OPEC supplies limited the bounce, Reuters reported.

Brent crude futures LCOc1 added 0.4 per cent to $75.59 a barrel after losing 2.0 per cent on Monday.

US crude futures CLc1 were up 0.55 per cent at $65.11 a barrel. It finished the previous session down 1.6 per cent.

Safe haven spot gold was little changed at $1,292.48 an ounce XAU= after posting three days of losses.

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