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Nikkei Markets

Asian stocks decline as weak China data drag down mainland companies

Chinese carmakers among the top losers

HONG KONG (Nikkei Markets) -- Asian shares outside of Japan declined Friday, dragged down by Chinese companies amid weak economic data.

The Nikkei Asia300 Index of companies outside Japan fell 0.6% to 1,265.30.

Earlier on Friday, China reported that industrial output last month climbed 5% year-on-year and retail sales increased by 8.6%. Urban investments, meanwhile, clocked a 5.6% growth. Economists polled by Reuters had pegged industrial output growth at 5.5%, retail sales at 8.1%, and urban investment at 6.1%.

"Another disappointing batch of activity data in May reinforces our view that growth will probably weaken a bit more this quarter," Capital Economics said in a note. "With consumer and business sentiment likely to sour further as the trade war escalates, additional policy easing will be needed to shore up growth."

The May data was being closely watched to assess the implications of the recent escalation of trade tensions between the U.S. and China. In the early part of May, the U.S. increased tariffs on $200 billion of Chinese goods and threatened to levy duties on $300 billion more of shipments.

Investor focus now shifts to the U.S. retail sales data, due later Friday. A weaker-than-expected data will further increase the likelihood of the Federal Reserve cutting interest rates. Following indications by Fed officials that they were prepared to cut rates amid mounting trade worries and last week's poor jobs report, traders have begun to price in Fed rate cuts. According to CME FedWatch Took, there is 30% chance that the U.S. monetary authority will cut rates by a quarter percentage points. Those odds climb close to 90% for the July meeting.

Energy related shares were in focus on Friday after Brent crude rose 2.2% overnight to $61.31 a barrel following an attack on two oil tankers near the Gulf of Oman. U.S. Secretary of State Michael Pompeo blamed Iran for the attack. The U.S. military released a video it said showed Iran's Revolutionary Guard removing an unexploded mine from the side of one of the two tankers attacked, Reuters reported. Brent was last trading $61.17 per barrel, easing form the day's high of $62.02.

Hong Kong-shares of Chinese energy producers CNOOC and PetroChina closed 0.2% and 0.9% higher, respectively.

An index of Chinese companies listed in Hong Kong fell 0.5%. Carmakers were among the top losers, while airlines outperformed. Guangzhou Automobile Group plunged 7.5%, adding to yesterday's 1.3% decline. On Wednesday, data showed passenger car sales in China slumped 17.4% in May from a year earlier.

Air China advanced 1.8% after reporting a 6.7% increase in total passengers carried in May.

Bank of East Asia slumped 9.1% to HK$21.95 after the Hong Kong-based lender said it expects a material decrease in profit for six months ending Jun. 30. Citi lowered its price target on the stock to HK$20.40 from HK$23.60

In index heavyweights, Tencent Holdings and Taiwan Semiconductor Manufacturing extended losses, slipping 1.3% and 1.7%. Samsung Electronics rebounded to close 0.6% higher.

--Nimesh Vora

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