Asian shares pause amid concerns over growth and trade

Asian stocks trod water on Wednesday as concerns over the outlook for global economic growth and the ongoing Sino-US trade war kept investors away from riskier assets.

Spreadbetters expected European stocks to open lower, with Britain's FTSE losing 0.3 per cent, Germany's DAX slipping 0.2 per cent and France's CAC shedding 0.4 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.15 per cent, stalling after climbing to a seven-week high on Monday. The Shanghai Composite Index was last down 0.15 per cent, having flitted in and out of the red. Australian stocks lost 0.25 per cent and Japan's Nikkei shed 0.1 per cent.

On Wall Street, the S&P 500, the Nasdaq and the Dow all posted their biggest one-day percentage drops since January 3 on Tuesday.

Following a sharp drop in December, US shares gained through much of January, supported in part by expectations for a thaw in US-China trade tensions and a more dovish-sounding Federal Reserve. That also prompted global investors to plough into riskier assets.

But putting a dent on sentiment again was a report by the Financial Times  that the Trump administration had rejected an offer from China for preparatory trade talks this week ahead of high-level negotiations scheduled for next week.

White House economic adviser Larry Kudlow denied the report, helping US equities pare some losses though the fresh concerns about US-China relations kept share prices in check.

Recently published data all pointed to a rough year ahead for the world economy.

US home sales tumbled 6.4 per cent in December, falling short of the weakest forecast, to their lowest in three years. Compared with a year earlier, they were down more than 10 per cent for the first time since 2011.

House price increases slowed sharply, adding to evidence of a further loss of momentum in the housing market.

Canadian factory sales and wholesale trade both slumped more than expected in November, while in Germany a survey by the ZEW research institute showed morale among German investors improved slightly in January, but their assessment of the economy's current condition deteriorated to a four-year low.

Japan's exports and imports also fell short of market expectations, with exports posting their biggest fall in more than two years.

As expected, the Bank of Japan kept monetary policy easy and trimmed its inflation forecast on Wednesday, with the domestic economy facing headwinds.

“The downward revision to its inflation forecasts underlines that policy tightening remains a very distant prospect,” wrote Marcel Thieliant, senior Japan economist at Capital Economics.

The IMF trimmed its global growth forecasts for 2019 and 2020 on Monday, in its second downgrade in three months, just after China reported its 2018 growth slipped to the worst level in nearly three decades.

“Risk asset prices have been essentially supported just by easing of US rate hike expectations,” said Shuji Shirota, head of macro-economics strategy at HSBC Securities.

“Economic data has been weak and the US government shut-down should be hurting economic sentiment, but even that has been considered as positive for risk assets, on the grounds that they make it difficult for the Fed to raise rates.”

US bond prices have found support, with the benchmark 10-year yield slipping to 2.744 per cent from Friday's peak of 2.799 per cent, the highest since December 27, with money market futures pricing out any chance of a Fed rate hike this year.

The euro was a shade higher at $1.1368, but remained in close reach of a three-week low of $1.1336 set on Tuesday, weighed by recent weakness in the euro zone economy and worries about fallout from Brexit.

The dollar rose 0.25 per cent to 109.73 yen, recovering the previous day's losses.

In commodities, US West Texas Intermediate (WTI) crude futures managed to crawl up 0.17 per cent to $53.1 per barrel after shedding 1.9 per cent the previous day. 

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