Stocks and Commodities Fall on Month End

Global stocks retreated with commodities and the yuan weakened as Chinese manufacturing data pointed to lackluster growth in the world’s second-largest economy. The yen strengthened as Japan delayed a planned sales-tax hike.

The Stoxx Europe 600 Index declined to a one-week low and the MSCI Asia Pacific Index snapped a five-day winning streak. Copper fell by the most in about three weeks, while crude oil slipped below $49 a barrel before an OPEC meeting on Thursday. The yuan approached a five-year low reached in early January, when concern about China’s currency policy roiled global financial markets. The yen and the Australian dollar were the best-performing major currencies, with the latter having strengthened after economic expansion beat estimates. South Korea’s bonds rallied after disappointing trade data.

China’s purchasing managers’ indexes for May added to evidence that growth remains subdued after the economy expanded last year at the slowest pace in more than two decades. Manufacturing gauges for the euro area and the U.S. are also due Wednesday, with the latter likely to be closely watched following a surge in speculation that the Federal Reserve will raise interest rates as early as this month. Polls showing an increased risk that the U.K. will vote to leave the European Union in a June referendum are also making investors wary.

"We’re seeing some people take profit,” said Hiroyuki Mino, a senior strategist at Mizuho Securities Co. “Brexit fears are leading to risk-off movements given the uncertainty on its impact to the world economy.”

China’s official manufacturing PMI for May was 50.1, just above the dividing line between improvement and deterioration. A comparable indicator for Japan was the lowest in at least three years and Prime Minister Shinzo Abe pushed back a proposed increase in the country’s sales tax to 2019. U.S. figures are likely to show factory activity barely expanded in May, a Bloomberg survey shows. Australia’s gross domestic product rose 1.1 percent in the first quarter from the prior three months, a bigger gain than economists forecast. Switzerland announced a 0.1 percent expansion that trailed estimates.

Stocks

The Stoxx Europe 600 Index fell 0.5 percent as of 8:12 a.m. London time. Royal Ahold NV jumped as much as 2.6 percent to its highest level since March after the Dutch grocery chain reported first-quarter profit that topped analysts’ predictions.

The MSCI Asia Pacific Index retreated 0.3 percent, after climbing 3.3 percent over the last five trading days. Japan’s Topix index slid 1.3 percent and Australia’s S&P/ASX 200 lost 1 percent, while Hong Kong’s benchmark declined.

Softbank Group Corp. climbed to its highest in more than a month in Tokyo after announcing plans to sell at least $7.9 billion of its stake in Alibaba Group Holding Ltd.

Futures on the S&P 500 fell 0.2 percent. Reports Tuesday showed U.S. consumer spending climbed in April by the most in almost seven years, while confidence fell.

“U.S. data is incredibly important at the moment as the market is looking for anything that may upset an increasingly expected July rate hike,” said Angus Nicholson, a markets analyst in Melbourne at IG Ltd. “Last night did not provide that, with most coming in largely in line with what the market was expecting.”

Currencies

The Bloomberg Dollar Spot Index fell 0.1 percent, after a 3.7 percent surge in May that marked its biggest monthly gain since September 2014. The odds of the Federal Reserve raising interest rates in June almost tripled last month to 34 percent, while the chance of a move by July roughly doubled to 54 percent, Fed Funds futures show. The euro weakened 0.1 percent versus the greenback before a European Central Bank policy meeting on Thursday.

The yuan dropped 0.2 percent, closing to within 0.1 percent of a five-year low. It slumped 1.5 percent in May, the biggest loss since an August devaluation, and exchange-rate policy may be on the agenda when the U.S. and China hold an annual economic meeting next week.

“Today’s PMI reports and the recent dollar strength both point to further weakening pressure on the yuan,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. “The PBOC may also want to let the currency follow market forces to weaken ahead of the U.S.-China economic dialogue later this month.”

Australia’s dollar strengthened 0.3 percent. The GDP report "reduces the risk" of the central bank adding to May’s interest-rate cut anytime soon, said Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank Ltd. New Zealand’s currency rose 0.3 percent after a gauge of the nation’s terms of trade increased by more than economists forecast.

The yen strengthened 0.7 percent, after sliding 3.8 percent in May. Prime Minister Abe told lawmakers he will “mobilize fiscal policy to achieve strong growth.”

“Abe has already decided on the sales tax and he said he will come up with more fiscal stimulus,” said Roy Teo, a senior currency strategist in Singapore at ABN Amro Bank NV. “From that perspective perhaps the market is speculating that with more fiscal stimulus in the pipeline then the BOJ may delay further easing policies. If the BOJ delays then it’s positive for the yen.”

Commodities

West Texas Intermediate crude fell 1 percent to $48.62 a barrel, after climbing for a fourth month in May. The Organization of Petroleum Exporting Countries is unlikely to reach an agreement limiting production at this week’s meeting in Vienna as the group sticks with Saudi Arabia’s strategy of squeezing out rivals, according to analysts surveyed by Bloomberg. The global surplus that has caused prices to slump since 2014 is correcting itself, the oil minister of the United Arab Emirates said Tuesday.

Copper declined 1.7 percent in London, while zinc, lead and tin were down at least 1.2 percent. Gold gained 0.1 percent, after sliding more than 6 percent in May.

Bonds

Japan’s 20-year bonds declined, pushing their yield up by one basis point to 0.255 percent, after the central bank scaled back purchases of super-long tenors in its debt-buying plan for this month. Notes due in 30 years and 40 years also declined.

South Korea’s three-year bond yield dropped six basis points to 1.445 percent, below the Bank of Korea’s record-low benchmark rate of 1.5 percent. Data Wednesday showed exports contracted for a 17th straight month, contributing to the smallest current-account surplus since June 2014, and Tuesday’s release of minutes from the central bank’s last policy meeting showed showed one of the seven board members saw the need for borrowing costs to be lowered in the “near term."

(Source: Bloomberg)