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Japan stocks lifted by strong capex growth

Thursday 03.20 BST

Overview

Japanese stocks were a bright spot in a mostly down day for Asia after Wall Street continued its mild retreat from a recent record high.

Hot topic

Investors in Asia were on the receiving end of a wave of economic data. One of the highlights was capital spending in Japan growing by 4.5 per cent during the first three months of the year and at a faster pace than economists expected, while company profits jumped by 26.6 per cent.

Korean trade data were more mixed, with an improvement in year-on-year import growth to 18.2 per cent in May not enough to offset an almost halving in export growth to 13.4 per cent.

A privately prepared but closely watched survey showed China’s manufacturing sector had fallen into contractionary territory in May for the first time in a year.

Australian retail sales grew in April at their quickest pace since September 2014. Capital expenditure during the March quarter rebounded from the end of last year but not by as much as economists forecast.

A number of private surveys showed that Japan’s manufacturing sector expanded further in May, while the sector’s pace of growth in Taiwan slowed and South Korea, Thailand and Malaysia experienced contractions.

Equities

Japanese stocks were boosted by data showing strong capital spending, company profits and growth in the manufacturing sector. The broad Topix benchmark was up 1 per cent, its biggest one-day gain since the start of May. Toshiba shares were down 2.1 per cent and the worst performer among big-name stocks as it sought to regain control of its joint venture with US chipmaker Western Digital in an effort to defuse a legal battle with its partner and speed up the $20bn sale of its prized memory business.

Australia’s S&P/ASX 200 was up 0.2 per cent but the materials sector was a poor performer as the price of iron ore continued to fall and oil sank almost 3 per cent in Wednesday trade.

Hong Kong’s Hang Seng gained 0.3 per cent, while China’s Shanghai Composite declined 0.3 per cent.

The S&P 500 eased 0.1 per cent on Wednesday, keeping it within spitting distance of last Friday’s record high.

Forex

Although the strong batch of economic data failed to prop up the yen, which was down 0.1 per cent at ¥‎110.93 per dollar, the weaker Japanese currency was helping stocks, particularly exporters.

The Australian dollar was the worst performer among major currencies in Asian trade, down 0.4 per cent at $0.74. The currency initially gained as much as 0.3 per cent following Thursday’s data releases but quickly sank as traders focused on the capex data falling short of expectations. The continued drop in the price of iron ore, a key Australian export, has also been a crutch, with the currency closing 0.5 per cent weaker on Wednesday.

The dollar index, a measure of the US currency against a basket of global peers, was up 0.1 per cent at 96.974 in Asia on Thursday after back-to-back declines that took the greenback to its lowest level since early October.

The British pound was trading 0.1 per cent weaker at $1.2877 in Asia. Sterling was battered on Wednesday by a poll showing the chances of a hung parliament in the UK’s general election this month had increased, but ultimately closed the session 0.2 per cent higher.

Commodities

Iron ore futures prices in China were down 3.8 per cent and facing their sixth straight session of declines. Prices fell about 14 per cent in May and are down almost 35 per cent from a 2017-high in February.

Oil prices were recovering in Asia after a drop of 3 per cent on Wednesday. Brent crude, the international benchmark, was up 0.8 per cent at $51.18 a barrel, while West Texas Intermediate was up 0.8 per cent at $48.72.

Gold was 0.1 per cent higher at $1,269.81 an ounce.

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