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Asia Stocks Wobble As OPEC+ Output Cuts, Weak US Data Raise Uncertainty

A passerby walks past an electric monitor displaying recent movements of various stock prices outside a bank in Tokyo, Japan, March 22, 2023.

Asian stocks dithered on Tuesday as investors grappled with inflation concerns in the wake of the surprise cuts to the OPEC+ group’s oil output targets, while treasury yields retreated after frail U.S. manufacturing sector data.

An announcement on Sunday of output target cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, propelled oil prices higher and complicated the inflation outlook. Brent crude was up 0.5% to $85.39 per barrel, after jumping over 6% overnight.

Investors were also assessing Monday’s economic data, which showed U.S. manufacturing activity in March slumped to its lowest level in nearly three years as new orders plunged, and analysts said activity could decline further due to tighter credit conditions.

“A weakening trend has been in place since May last year, but recent banking turmoil may have dented confidence further,” ANZ analysts said in a note.

“Manufacturing is one of the most rate-sensitive sectors of the economy as goods like autos are primarily bought on credit. There continues to be encouraging news on goods inflation.”

Early in the Asian day, MSCI’s broadest index of Asia-Pacific shares outside Japan was trading steady.

Japan’s Nikkei stock index rose 0.24% while Australian shares were up 0.1%.

China’s blue-chip CSI300 index edged down 0.16% in early trade, while Hong Kong’s Hang Seng index opened 0.64% lower.

On Monday, gains in energy shares helped lift world stock indexes following the surprise OPEC+ group’s new production cuts that could push oil prices toward $100 a barrel.

The S&P 500 energy sector index surged 4.9% with Chevron Corp, Exxon Mobil Corp and Occidental Petroleum Corp all rallying more than 4%.

However, the prospect of higher oil costs added to inflation worries on Wall Street just days after evidence of cooling prices raised expectations that the U.S. Federal Reserve might soon end its aggressive monetary tightening campaign.

The Dow Jones Industrial Average rose 0.98%, the S&P 500 gained 0.37% and the Nasdaq Composite dropped 0.27%.

Shares of Tesla Inc dropped 6.1% after disclosing March-quarter deliveries rose just 4% from the previous quarter, even after CEO Elon Musk slashed car prices in January to boost demand.

Market watchers have been trying to gauge how much longer the Fed may need to keep raising interest rates to cool inflation and whether the U.S. economy may be headed for recession.

Treasury yields retreated after the U.S. manufacturing data, which increased expectations for some investors the Fed will cut rates later this year as the economy slows. Separate data also showed U.S. construction spending weakened in February.

The yield on benchmark 10-year Treasury notes was last at 3.4263% compared with its U.S. close of 3.432% on Monday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.9841% compared with a U.S. close of 3.98%.

The dollar reversed some losses but remained on the defensive after losing ground on Monday in the wake of the weak U.S. economic data.

The U.S. dollar index which tracks the greenback against a basket of currencies of other major trading partners, was last up at 102.11. The euro was a touch higher at $1.0904, while against the Japanese yen, the dollar was off 0.09% at 132.35.

Gold was slightly lower. Spot gold was traded at $1982.19 per ounce. [GOL/]

(Editing by Shri Navaratnam)