Asia markets gain despite global growth worries

Asian shares edged higher on Tuesday despite data reinforcing investor fears the global economic recovery may be more fragile than expected, even as inflationary pressures remain high.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.84 per cent on Tuesday, but is still down the index is down 6.7 per cent so far this month. US stocks ended the previous session with mild losses.

In Tokyo, the Nikkei was flat in early trade, while in Australia the S&P/ASX200 index gained 0.34 per cent.

Hong Kong's Hang Seng Index was 1.2 per cent higher and mainland China's CSI300 Index gained 0.07 per cent.

The US dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was flat in Asian trade to be at 104.1.

Economic growth fears in the world's two largest economies have re-emerged following weak retail sales and factory production figures in China and disappointing US manufacturing data.

Investors are also weighing the global inflationary impact of lockdowns in China to combat the coronavirus, which have halted factory production in areas across the country.

"One important way China's lockdowns could impact the rest of the world is through its impact on inflation. After all, inflation – and the central bank response – has been a stiff headwind for global bond and equity markets this year," Capital Economics wrote in a note to clients.

The gains on Tuesday in Asian markets follows a mostly weaker US session on Monday.

The S&P 500 declined 0.4 per cent, while larger losses were incurred on the Nasdaq Composite which dropped 1.2 per cent, to 11,664.

The Dow Jones index was barely positive, up just 0.08 per cent.

"Risk markets were weighed down by concerns over deteriorating global growth prospects," ANZ strategists said in a research note.

"Hugely disappointing Chinese data for April and the plunge in the US Empire State manufacturing index raised anxiety that economic activity may be suffering an abrupt loss in momentum as supply-chain disruption intensifies. The profile of the data suggests that supply issues related to the zero-COVID policy in China are the key factors."

The New York Fed's Empire State manufacturing index published on Monday showed an abrupt fall during May and shipments fell at their fastest pace since the beginning of the pandemic.

In early Asian trade, the yield on benchmark 10-year Treasury notes rose to 2.8931 per cent compared with its US close of 2.879 per cent on Monday.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 2.578 per cent compared with a US close of 2.568 per cent.

"Markets currently price the Fed funds rate to be 53 basis points higher at the next meeting in June, and 200 basis points higher by year end," said Imre Speizer, Westpac's head of New Zealand strategy.

The dollar rose 0.06 per cent against the yen to 129.24. It is getting closer to its high this year of 131.34.

The European single currency was up 0.1 per cent on the day at $1.0437, having lost 0.99 per cent in a month.

US crude dipped 0.18 per cent to $113.99 a barrel. Brent crude was slightly higher at $114.40 per barrel.

Gold was slightly higher. Spot gold was traded at $1,826.7072 per ounce.