Asian markets down, dollar up after weak China trade data

By Scott Murdoch

SYDNEY (Reuters) – Asian share markets were mostly weaker on Tuesday but the dollar strode higher as investors digested weaker Chinese trade data ahead of key inflation readings from China and the United States due later this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.7%, after U.S. stocks ended the previous session with mild gains. The index is down 2.9% so far this month.

In early European trades, pan-region Euro Stoxx 50 futures were down 0.11% at 4,352, German DAX futures were down 0.08% at 15,998, and FTSE futures were down 0.13% at 7,530.

U.S. stock futures, the S&P 500 e-minis, were down 0.21% at 4,528.3.

Data showed China’s imports contracted at 12.4% in July, missing forecasts for a drop of 5%, while exports fell 14.5%, compared with a fall of 12.5% tipped by economists.

The offshore yuan fell to a more than two-week low of 7.2334 per dollar, while its onshore counterpart similarly bottomed at an over two-week low of 7.2223 per dollar.

The Aussie weakened 0.38% to $0.6549, while the kiwi slid 0.55% to $0.60735.

The dollar rose 0.46% against the yen at 143.15. It is still some distance from its high this year of 145.07 hit on June 30.

The yield on benchmark 10-year Treasury notes rose to 4.0442% compared with its U.S. close of 4.078% on Monday. The two-year yield, which rises with traders’ expectations of higher Federal Reserve fund rates, touched 4.7598% compared with a U.S. close of 4.758%.

The European single currency was down 0.1% on the day at $1.1002 while the dollar index, which tracks the greenback against a basket of currencies of major trading partners, was up at 102.24.

Hong Kong’s Hang Seng Index started to recover some ground lost earlier in the day, but was still down 1.26% after opening 1.73% in the red.

Sentiment rebounded in China as the blue chip CSI300 index turned positive to be up 0.07% after initially shedding 0.54%.

Australian shares were up 0.15%, while Japan’s Nikkei stock index rose 0.29% after earlier trading up by nearly 0.8%.

Global investors are keenly awaiting inflation readings from China on Wednesday and the U.S. on Thursday, expecting them to show stark differences in price movement in the world’s two biggest economies.

U.S. inflation likely accelerated slightly in July to an annual 3.3%, while the core rate was likely unchanged at 4.8%, according to a Reuters poll of economists. ANZ predicts China’s July consumer price index to come in at minus 0.4% year-on-year.

“China inflation has been quite low but that is because economic growth has been slowing down and not met expectations,” said Wei Li, BNP Paribas Asset Management multi asset portfolio manager.

“Inflation should start to pick up when growth does and we expect that to happen in the second half.”

The prospect of economic stimulus from China’s central government to reinvigorate a soft economy is still being contemplated by investors. Minor measures to help property markets have been delivered in the past fortnight, but no broad stimulus has been outlined.

“While awaiting ominous signs of deflation, markets are torn between economic gloom and hopes of resounding stimulus that is set to re-ignite China’s growth,” Mizuho economists said.

“We are however unconvinced that Beijing’s stimulus efforts will achieve intended ‘lift-off’ for the still struggling economy.”

U.S. crude ticked up 0.21% to $82.11 a barrel. Brent crude rose to $85.46 per barrel.

Gold was slightly lower with the spot price at $1934.1667 per ounce. [GOL/]

(Reporting by Scott Murdoch in Sydney; Editing by Lincoln Feast)