Asia report: Stocks fall as service sector growth slows

Asia-Pacific stock markets ended Tuesday's session largely in negative territory, as investors assessed the impact of survey data on services activity across the region.

“Asian equity markets faced downward pressure as market participants digested the latest Chinese Caixin services PMI data and ongoing geopolitical concerns,” said TickMill’s Patrick Munnelly.

“[The] Nikkei 225 initially slumped but recovered slightly after holding above the 33,000 handle.

“[The] Hang Seng and Shanghai Composite remained subdued due to trade-related frictions and warnings of potential retaliatory measures against Western tech export controls.

“The Chinese Caixin services PMI came in below forecasts, signalling the slowest pace of increase since January.”

Stock indices mostly lower as dollar strengthens

Japan's Nikkei 225 index fell slightly by 0.25% to close at 33,338.70, while the Topix index experienced a marginal decline of 0.02% to finish at 2,306.03.

Major retail corporation Fast Retailing saw a notable dip, shedding 2.54% of its value on Tokyo’s benchmark, with Takara Holdings and Isetan Mitsukoshi trailing closely behind with losses of 2.33% and 2.19% respectively.

In China, the Shanghai Composite dropped by 0.69% to 3,222.95, with the Shenzhen Component decreasing by 0.91% to 11,029.30.

Dongfeng Electronic Tech had a particularly challenging day in Shanghai, plummeting by a significant 10.01%, while Fujian Apex Software was down by 5.74%.

Hong Kong's Hang Seng Index was hit hard, falling by 1.57% to close at 19,110.38.

Among the most substantial decliners were Zhongsheng, down 5.3%, and Li Ning Co and Country Garden Holdings, both slipping by just under 5%.

South Korea's Kospi also dropped, ending the day down 0.55% at 2,579.00.

Biopharmaceutical firm SK Biopharma and FF Co. recorded losses of 5.29% and 3.47% respectively.

Australian shares followed the regional downtrend, with the S&P/ASX 200 falling 0.35% to end at 7,253.20.

Financial services company AMP and fintech firm Netwealth Group led the decline, down 6.14% and 3.79% respectively.

Contrary to the broader regional trend, New Zealand's S&P/NZX 50 managed to record a modest gain of 0.18% to end at 12,002.46.

Pacific Edge saw a significant rise of 5.62%, while Oceania Healthcare increased by 2.7%.

In currency markets, the dollar was last 0.04% stronger on the yen, 0.44% on the Aussie and 0.1% on the Kiwi, trading at JPY 144.53, AUD 1.5008 and NZD 1.6168 respectively.

On the oil front, Brent crude futures were marginally lower, last trading down 0.21% on ICE at $76.09 per barrel, while the NYMEX quote for West Texas Intermediate rose 2.08% to $71.24.

China and Japan service sector activity expands, albeit at a slower pace

Service sector activity in both China and Japan maintained growth in June, marking a positive economic trajectory despite a slight deceleration in the pace of expansion, according to data released earlier.

As per Caixin/S&P Global, China's services sector exhibited positive performance for the sixth consecutive month.

However, the Caixin services purchasing managers index (PMI) for June recorded a reading of 53.9, marking a slowdown from the 57.1 figure reported in May.

Despite the deceleration, the results still indicate a period of expansion, with any PMI reading above 50 reflecting growth in the sector.

“The services sector recovery appears to be slowing, after the initial strong burst of growth immediately after China dropped zero-Covid policy,” said Pantheon Macroeconomics’ chief China economist Duncan Wrigley.

“People are worried about the broad economic outlook as well as their own jobs and income prospects.

“Policymakers are likely to view the services recovery against the backdrop of the falling manufacturing sector and conclude that GDP growth is on a gradual slowdown.”

That, Wrigley said, warranted a “measured easing approach”, but not a “mega stimulus”.

“Limited fiscal, quasi-fiscal and targeted monetary policy measures are likely to follow the 10 basis point lending rate cuts.”

Meanwhile, the Japanese service sector also remained on an upward trend, bolstered by strong demand conditions within the economy.

The final au Jibun Bank Japan services PMI for June fell marginally to 54, a step down from May's record high of 55.9, but still comfortably within the expansion territory.

“The signs of easing inflationary pressure in both the services and manufacturing PMIs are likely to cheer the Bank of Japan, which expects a gradual cooling in consumer prices,” Pantheon’s Duncan Wrigley added.

“The BoJ is likely to see little reason to change its easy policy settings in the near term, with manufacturing activity in gentle decline and the services sector expansion losing its shine.

“We expect no change to policy settings in the second half.”

Reporting by Josh White for Sharecast.com.