SINGAPORE- Asian stock markets edged lower on Tuesday as economic data showed US services sector unexpectedly softened, reinforcing expectations that the Federal Reserve may skip an interest rate hike when it meets next week.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1 percent at 514.37. Tokyo’s Nikkei eased 0.22 percent, while Australia’s S&P/ASX 200 index lost 0.73 percent ahead of the Reserve Bank of Australia’s (RBA) policy decision later in the day.
China shares declined 0.15 percent, while Hong Kong’s Hang Seng Index was 0.07 percent lower.
Data overnight showed that the US services sector barely grew in May as new orders slowed, pushing a measure of prices paid by businesses for inputs to a three-year low, which could aid the Federal Reserve’s fight against inflation.
The services industry accounts for more than two-thirds of the US economy.
“The index sends another signal that demand is cooling and that the cumulative tightening is working through the economy, giving room to the Fed to pause in June to assess conditions further,” said Saxo Markets strategists in a note to clients.
A string of economic data along with last week’s dovish rhetoric from Fed officials have emboldened bets of the Fed refraining from an interest rate hike at its June 13-14 meeting.
Data on Friday showed US nonfarm payrolls rose by 339,000 jobs in May, but a surge in the unemployment rate to a seven-month high of 3.7 percent suggested an easing in labor market conditions.
Markets are now pricing in a 77 percent chance of the Fed standing still, a sharp jump from a 36 percent chance a week earlier, according to CME FedWatch tool.
“The tactical risk for equity investors in the very near term is that the Fed indeed skips a meeting and raises rates in July and not June,” said Gary Dugan, CIO of Dalma Capital.
“The vibrancy of growth, the debt ceiling as an issue out of the way now, and a slow-moving Fed might just trigger a further rally in equities.”
In oil markets, prices eased to give up most the gains from the previous session after the world’s top exporter, Saudi Arabia, said that it would further cut output. US crude fell 0.25 percent to $71.97 per barrel and Brent was at $76.55, down 0.21 percent on the day.
