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Nikkei Markets

Asian stocks slip as US Fed rate cut expectations fade

Hong Kong property developers climb after city suspends extradition bill

HONG KONG (Nikkei Markets) -- Asian shares outside of Japan declined on Monday after upbeat U.S. data eased expectations of an immediate interest rate cut by the Federal Reserve.

However, Hong Kong equities rose after the city suspended a controversial extradition bill over the weekend.

The Nikkei Asia300 Index of companies outside Japan fell 0.3% to 1,261.40.

Asian equities struggled for direction ahead of the Fed’s two-day meeting that begins Tuesday. The likelihood of U.S. central bank trimming borrowing costs this week faded after data on Friday showed U.S. consumer spending was holding up well. Headline U.S. retail sales rose 0.5% month-on-month in May and April sales were revised higher. Control sales, a subset of the retail sales that is considered a close proxy for spending, topped estimates.

Odds of the Fed cutting interest rates on Wednesday are now at 18%, according to the CME Fed Watch Tool. Prior to the retail sales data, the probability was closer to one-in-three.

Jingyi Pan, market strategist at IG Asia, said the positive surprise out of the U.S. “may have undermined some of the market’s confidence for the dovishness expected in the upcoming meeting” and the robust American consumer reduces the “urgency for a Fed cut to come through in support of economic growth”

Providing one more reason for the Fed to not cut rates on Friday was better-than-expected U.S. industrial output data.

The U.S. dollar index rose by the most in three months Friday. U.S. equities slipped.

On the A300 Index on Monday, New World Development led Hong Kong property developers’ higher, adding 2.1%. Hong Kong’s Chief Executive Carrie Lam on Saturday announced the suspension of a bill, that if enacted would allow criminal suspects to be extradited from Hong Kong to mainland China. The move followed a number of large-scale protests by Hong Kong residents. Sun Hung Kai Properties added 0.9%.

Stephen Innes, Managing Partner at Thailand-based Vanguard Markets, said that the suspension removes the threat of capital outflows from the city. The Hang Seng Index, Hong Kong’s benchmark gauge, closed 0.4% higher on Monday,

Still, protests in the city continued on Sunday, with an estimated 2 million people taking to the streets as they demanded a complete withdrawal of the bill and Carrie Lam’s resignation.

Meanwhile, index heavyweights Samsung Electronics and Taiwan Semiconductor Manufacturing slipped 0.2% and 1.3%, respectively.

China Southern Airlines and China Eastern Airlines fell 1.6% and 2.5%, respectively. China Southern late Friday said May passengers carried rose 7.8% to 12.3 million, while China Eastern reported an 8.5% increase.

Singapore Technologies Engineering closed 1% lower. The Singapore engineering and defense conglomerate said Sunday that its aerospace arm had entered into a long-term collaboration to be a licensed repair center for components made by America’s Honeywell.

--Nimesh Vora

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