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Asia shares drop as U.S. manufacturing declines

Asian shares

Nikkei 225 index shed 0.5% to 38,749.25, the Kospi was down 0.4% at 2,672.43, Hang Seng added 0.1% to 18,413.20, the Shanghai Composite index edged down 0.1% to 3,075.09, S&P/ASX 200 lost 0.1% to 7,751.50, and Taiex shed 0.7%

Asian shares declined on Tuesday after a report showed that U.S. manufacturing contracted in May, in the latest sign the economy is slowing.

Oil prices dropped and U.S. futures rose.

Japan’s Nikkei 225 index shed 0.5% to 38,749.25 and the Kospi in Seoul was down 0.4% at 2,672.43. Hong Kong’s Hang Seng was the exception, adding 0.1% to 18,413.20, while the Shanghai Composite index edged down 0.1% to 3,075.09.

Australia’s S&P/ASX 200 lost 0.1% to 7,751.50. Taiwan’s Taiex shed 0.7%.

On Monday, U.S. stocks dropped to a mixed finish.

The S&P 500 rose 0.1%, to 5,283.40, even though the majority of stocks within the index dropped. The Dow Jones Industrial Average slipped 0.3% to 38,571.03, and the Nasdaq composite added 0.6% to 16,828.67.

Treasury yields also slipped in the bond market after the report by the ISM showed U.S. manufacturing declined in May for the 18th time in 19 months. Manufacturing has been hit especially hard by high interest rates meant to get high inflation under control. That can also hit Asian economies that rely on exports.

Analysts questioned the significance of the report, given that the indicator has been declining for most of the last two years.

So, why such a distinct wave of U.S. pessimism this time? Was it a manufactured excuse to take profits? Or is there a deeper cause for concern beneath the hood? Tan Jing Yi of Mizuho Bank said in commentary. We suspect it is a bit of both.

The yield on the 10-year Treasury dropped to 4.39% from 4.50% late Friday.

This week has several other high-profile economic reports that could send yields on additional sharp swings.

On Tuesday, the U.S. government will show how many job openings employers were advertising at the end of April. And on Friday, it will give the latest monthly update on overall growth for jobs and workers’ wages.

Stocks of companies whose profits are most closely tied to the strength of the economy declined to the market’s worst losses. That included the oil-and-gas industry, as the price of crude dropped on concerns over weaker demand growth for fuel.

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