5-7-2023 (SYDNEY) Asian shares experienced a downturn on Wednesday as concerns grew over a slowdown in China’s services sector. Investor attention also shifted towards the release of the Federal Reserve minutes and an important US jobs report scheduled later in the week.
Trading conditions remained subdued following the Independence Day public holiday on Wall Street. S&P 500 futures dipped 0.1%, while Nasdaq futures fell 0.2%.
MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 0.7%, and Japan’s Nikkei also declined by 0.4%, marking the second consecutive session of losses after reaching three-decade highs.
In Australia, resource-heavy shares fell 0.2% after the Reserve Bank of Australia announced it would maintain interest rates on Tuesday but issued a warning about potential future tightening measures.
In China, a survey revealed that the expansion of the services sector continued to slow in June, raising concerns about the country’s post-COVID recovery losing momentum. Chinese blue chips fell 0.5%, and Hong Kong’s Hang Seng index slumped 1.3%.
Andrew McCaffery, Global Chief Investment Officer at Fidelity International, expressed optimism despite the current setbacks in China, stating, “While it may feel like China has taken two steps back, the next move could be three forward.” McCaffery added that Chinese shares are currently trading at a significant discount, making it an attractive entry point for investors, especially with signs of stabilization in the US-China relationship.
Tensions in the tech space between China and the US weighed on market sentiment, with Beijing imposing restrictions on exports of two metals and reports suggesting that Chinese firms would be banned from accessing cloud computing. However, shares of some Chinese chip manufacturers rallied as supply concerns pushed metal prices higher.
Traders are eagerly awaiting the release of the Federal Reserve’s minutes from its latest policy meeting on Wednesday, as well as the non-farm payrolls report on Friday. Market expectations are high for a rate hike by the Fed in July, following a pause last month.
Economists surveyed by Reuters predict that the United States added 225,000 jobs last month, a slight slowdown compared to the 339,000 job gains in the previous month, with average earnings expected to hold steady with a monthly growth of 0.3%.
Chris Weston, Head of Research at Pepperstone, highlighted the evolving market sentiment, noting that just a month ago, investors were seeking signs of a cooling job market to confirm the effectiveness of the Fed’s rate hikes. However, the thesis has now shifted, and the market is looking for strong job creation while expecting subdued wage growth.
Currency markets remained relatively calm, with the yen showing little change at 144.53 per dollar, slightly away from its weakest level in eight months at 145.07.
The Australian dollar slid to $0.6682 following a volatile session that saw it recover from losses prompted by the RBA’s rate decision and test key resistance at $0.6696.
Short-term Treasury yields eased by 4 basis points to 4.9044%, while 10-year yields remained largely unchanged at 3.8467%.
Oil prices relinquished some of their gains on Wednesday after an earlier increase driven by concerns over production cuts by major producers Saudi Arabia and Russia. Brent crude futures fell 0.6% to $75.78 a barrel after climbing 2.1% overnight.
