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China Factory Weakness Sparks Uneven Performance Across Asia-Pacific Markets

Asia-Pacific markets delivered a mixed performance on Tuesday as investors reacted to unexpectedly weak manufacturing data out of China—amplifying broader concerns over global economic momentum and renewed trade friction with the U.S.

China’s Manufacturing PMI Misses Expectations

The Caixin/S&P Global manufacturing Purchasing Managers’ Index (PMI) for May fell to 48.3, marking its lowest level since September 2022. That’s well below the Reuters median forecast of 50.6 and a sharp decline from April’s reading of 50.4. A reading below 50 signals contraction in manufacturing activity.

The drop was largely driven by a steep fall in new export orders, indicating weakening demand from overseas buyers. According to Caixin, this was the sharpest decline in foreign orders since July 2023, reflecting the increasing burden of U.S. tariffs on Chinese goods.

U.S.–China Trade Tensions Resurface

On Monday, Beijing pushed back against U.S. accusations of trade agreement violations, shifting blame to Washington for failing to honor prior commitments. The renewed finger-pointing signals that tensions between the world’s two largest economies could escalate, further weighing on global investor sentiment.

The European Union also expressed concern, criticizing U.S. President Donald Trump's proposal to double steel tariffs to 50%. EU officials warned such a move would "undermine" ongoing negotiations, and hinted at possible retaliatory measures.

Market Reactions Across Asia-Pacific

Hong Kong:
The Hang Seng Index led regional gains, closing up 1.53% at 23,512.49, driven by a rally in tech and energy shares.

Mainland China:
Despite the grim manufacturing data, the CSI 300 rose 0.31%, finishing at 3,852.01, in volatile trade as investors bet on more stimulus measures from Beijing.

Japan:
The Nikkei 225 ended virtually flat at 37,446.81, while the broader Topix index dipped 0.22% to 2,771.11 as traders weighed the implications of China’s slowdown on Japanese exporters.

Australia:
The S&P/ASX 200 gained 0.63%, ending at 8,466.70, after touching a near four-month high earlier in the session. However, Australia’s Q1 current account deficit came in at AU$14.7 billion (US$9.53 billion)—wider than economists’ expectations of AU$13.1 billion, though an improvement from AU$16.3 billion in the previous quarter.

India:
Equity markets in India retreated, with the Nifty 50 dropping 0.64% and the BSE Sensex falling 0.88% as of early afternoon local time, amid concerns about global demand and election-related volatility.

South Korea:
Markets were closed for a national election polling day, but investors are watching closely how political outcomes may shape future economic policy.

Wall Street Offers a Glimmer of Hope

Despite the cautious tone in Asia, U.S. markets began June on a strong footing. On Monday:

• S&P 500 rose 0.41%, closing at 5,935.94
• Nasdaq Composite advanced 0.67% to 19,242.61
• Dow Jones Industrial Average edged up 0.08% to 42,305.48

However, U.S. futures dipped slightly during Asian hours, signaling that traders remain wary of mounting geopolitical tensions and inflationary pressures ahead of Friday’s U.S. jobs report.

Outlook: Uncertainty Ahead

With China’s industrial engine showing signs of strain and global trade friction reigniting, investors are bracing for more volatility. Markets are closely monitoring upcoming data points—including China's Caixin services PMI (due Thursday) and U.S. employment figures—for further clues on growth and monetary policy.

Analysts suggest that unless Beijing unveils stronger fiscal and monetary support, China's slowdown could have ripple effects across the Asia-Pacific supply chain, particularly in export-reliant economies like Japan, South Korea, and Australia.

For now, the tug-of-war between economic data, policy responses, and geopolitical risks continues to drive short-term market direction across the region.