Asia report: Markets struggle for direction as traders watch bond markets

Markets in Asia finished mixed on Wednesday, as investors struggled to find direction following another inversion of Treasury yield curves in the United States overnight.

In Japan, the Nikkei 225 was up 0.11% at 20,479.42, as the yen strengthened 0.03% against the dollar to last trade at JPY 105.72.

Of the major components on the benchmark index, automation specialist Fanuc was down 0.08%, while fashion firm Fast Retailing and technology conglomerate SoftBank Group both gained 0.19%.

The broader Topix went the other way to the main index, making marginal gains to finish 0.04% higher at 1,490.35.

On the mainland, the Shanghai Composite lost 0.29% to close at 2,893.76, and the smaller, technology-heavy Shenzhen Composite was 0.13% weaker at 1,593.82.

South Korea’s Kospi was 0.86% firmer at 1,941.09, while the Hang Seng Index in Hong Kong slid 0.19% to 25,615.48.

Both of the blue-chip technology stocks were higher in Seoul, with Samsung Electronics up 0.23% and chipmaker SK Hynix rising 0.41%.

Investors had their eyes across the Pacific at the start of the Asian session, after the spread between the two-year US Treasury yield and the 10-year rate fell to -5 basis points overnight, marking its lowest level in 12 years.

The so-called ‘yield curve inversion’ phenomenon is seen by many market watchers as a sign of a potential recession in the United States - something a number of analysts are concerned about, given the woeful state of trade relations between the US and China.

London Capital Group head of research Jasper Lawler said trying to pick where the trade dispute between Washington and Beijing was heading was a challenge, especially given the credibility of what Donald Trump has said about progress was now in question.

“China sounding out Trump on the lack of any phone call has put an end to the Trump-inspired market rally earlier in the week.

“Optimism of a resolution has drifted off into the distance as investors attempt to second guess the next moves in the trade dispute.”

The next round of tariffs were set to be staggered, starting from 1 September.

“The trade dispute is now entering its second year and the impact is being felt on the global economy,” Lawler added.

“Recession warning bells sounded once again in the bond market, which is likely to keep traders on edge across the session.”

Oil prices were higher as the region went to bed, with Brent crude last up 1.02% at $60.12 per barrel, and West Texas Intermediate rising 1.31% to $55.66.

In Australia, the S&P/ASX 200 rose 0.45% to close its trading session at 6,500.60, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 1.1% firmer at 10,626.17.

Both of the down under dollars were weaker on the greenback, with the Aussie last off 0.1% at AUD 1.4825, and the Kiwi retreating 0.15% to NZD 1.5742.