Asia stock markets wavered on Wednesday after downbeat US manufacturing data raised questions about how aggressive the Federal Reserve would be when hiking interest rates, while the dollar retreated from 8-1/2-month highs.
Still, spreadbetters forecast Britain’s FTSE, Germany’s DAX and France’s CAC would open slightly higher following gains on Wall Street overnight driven by health and consumer shares.
The US manufacturing sector contracted last month to its weakest level since June 2009, according to Institute for Supply Management (ISM) data on Tuesday, though construction spending rose in October to the highest level since December 2007.
“The poor ISM data is unlikely to derail any rate hike plans as US domestic demand is firm and wages show inflationary signs,” wrote Makoto Noji, a senior rates strategist at SMBC Nikko Securities in Tokyo.
“But it could also prevent the Fed from actively hiking rates (later on) as it showed that monetary tightening could negatively affect the U.S. economy through a stronger dollar, weaker emerging currencies and lower commodities.”
Investors’ focus is now turning to the closely-watched U.S. jobs report due on Friday, a factor that could determine what kind of a rate hike approach the Fed adopts at its Dec. 15-16 policy meeting.
A slower tightening cycle would mean that the flood of liquidity the Fed has been providing to global risk asset markets would not subside as quickly. But it could also lead to concerns among Asian exporters about the strength and sustainability of demand in one of their key markets.
MSCI’s broadest index of Asia-Pacific shares outside Japan was unchanged by early afternoon.
Shanghai shares gained 0.4 percent and Hong Kong’s Hang Seng rose 0.3 percent. Thai and Singaporean shares also advanced.
The decliners included Japan’s Nikkei, which lost 0.2 percent on a stronger yen. South Korea’s Kospi dipped 0.4 percent. Australian stocks were down 0.2 percent but had cut most of its earlier losses following a robust domestic GDP data release.
Australia’s economy grew a brisk 0.9 percent in the third quarter, marking a 24th year free from recession.
The Australian dollar, already on a bullish footing after the Reserve Bank of Australia (RBA) skipped a chance on Tuesday to cut interest rates or talk down the currency afresh, touched a 7-week high of $0.7345.
Still, the RBA was seen sticking to an easing bias and eventually cutting rates.
“Overall the Reserve Bank is likely to be encouraged by the latest result although there is still a long way to go to see annual growth back at trend levels,” said Savanth Sebastian, an economist at CommSec.
“The risks still lie with a further rate cut in early 2016 if activity levels don’t lift further from here.”
The dollar index, a gauge of the greenback’s strength against a basket of key currencies, pulled back from the 8-1/2-month peak of 100.310 scaled on Monday, and last stood at 99.938 in the wake of the disappointing manufacturing figures.
The benchmark U.S. 10-year Treasury note yield declined and weighed on the dollar. The yield fell to a 1-month low of 2.145 percent overnight as safe-haven government debt attracted bids.
The dollar’s retreat provided some respite to the euro, which has been battered recently by prospects of the European Central Bank rolling out more stimulus at its policy meeting on Thursday. The common currency traded above $.10600, pulling back from a 7-1/2-month low of $1.0557.
The greenback stepped back to 123.05 yen from Monday’s high of 123.34.
In commodities, crude oil prices sagged on expectations that OPEC will not cut output to stem a supply glut when they meet later this week.
US crude was down 0.7 percent at $41.57 a barrel and Brent lost 0.2 percent to $44.25 a barrel.