People walk past an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo. Reuters
Asian shares skidded on Tuesday as a strong dollar sapped demand for emerging market assets while surging oil prices stoked concerns about a flare-up in inflation and faster US interest rate increases.
Europe was set for a muted start, with futures for London's FTSE index and the Eurostoxx 50 up 0.1 percent each but E-Minis for the S&P 500 were flat. Japan's Nikkei ended 0.2 percent lower and Australian shares fell 0.7 percent. Chinese stocks were in the red too with the blue-chip CSI300 off 0.5 percent. Liquidity was relatively thin due to holidays in South Korea and Hong Kong.
Even though most major Asian markets edged lower, MSCI's broadest index of Asia-Pacific shares outside Japan managed to eke out a small 0.17 percent gain. The index is well below an all-time peak of 617.12 points hit in January, and is flat so far this year after a super-charged 33.5 percent gain in 2017.
"We are seeing US dollar strength and that is causing money to flow out from emerging markets to the US There is some sort of risk aversion going on," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management. "People are cautious about taking exposure in emerging markets."
Those concerns offset the boost to sentiment from overnight gains on Wall Street over the apparent reconciliation between the United States and China over import duties. Analysts said investors in the region were worried about the growth outlook, with the US Federal Reserve staying on its policy tightening path.
"Stocks have rallied several times on the belief that trade tensions were easing, only to fall back down as investors took the opposite view," said James McGlew, executive director of stockbroking at Perth-based Argonaut.
"While the global economy remains robust and first-quarter earnings have been strong, stock markets have mostly traded sideways this year because many investors have started to fear that the pace of the expansion has already peaked." JPMorgan's Shigemi said investors will now turn their focus to the next Fed meeting on June 13 where it is widely expected to raise rates for a second time this year.
A total of three hikes is almost fully priced-in by the market for 2018 although some investors expect the Fed to be more aggressive. It was the fear of higher inflation and thus faster Fed rate rises that caused a bond market rout earlier this year, sending yields sharply higher and triggering a share market sell-off.
The dollar hovered near five-month highs against a basket of currencies, boosted by the U.S.-China trade optimism. The dollar index was last down 0.1 percent at 93.56 from Monday's top of 94.058. The euro eased to $1.1777, within spitting distance of a more than six-month trough of $1.1715 touched on Monday amid continued political risk in Italy.
-Reuters, Sydney
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