Total 28 issues of 33 subsectors of the Tokyo Stock Exchange declined, with shares in Oil & Coal Products, Securities & Commodities Futures, Glass & Ceramics Products, Fishery, Agriculture & Forestry, Marine Transportation, Mining, and Nonferrous Metals issues being notable losers.
The risk aversion selloff continued due to worries that a prolonged U.S.-China trade war and Washington's tariff threat to Mexico could derail the global economy. On Friday, the Trump administration eliminated India's ability to export products to the US duty-free. Further, President Trump threatened to impose tariffs on Mexico over immigration.
Meanwhile, China implemented tariff hikes Saturday and launched an investigation into FedEx after it diverted two parcels destined for Huawei addresses in Asia to the United States.
A senior Chinese official said on Sunday that United States cannot use pressure to force a trade deal on China, refusing to be drawn on whether the leaders of the two countries would meet at the G20 summit to bash out an agreement. China threatened on Friday to unveil an unprecedented hit-list of unreliable foreign firms, groups and individuals that harm the interests of Chinese companies, as a slate of retaliatory tariffs on imported U.S. goods.
With the US and China set for a long drawn out trade war, the markets have begun pricing the possibility the Federal Reserve will cut its target rate by a half-percentage point by year-end. Goldman Sachs also sees a higher chance of rate cut but believes it is a close call as the economic outlook has not changed much.
Data from a private survey on Monday showed that Chinese manufacturing activity was better than expected in May. The Caixin/Markit factory Purchasing Managers' Index for May was 50.2. The PMI reading for April was 50.2. PMI readings above 50 indicate expansion, while those below that signal contraction. Last week, China's official manufacturing PMI for May came in at 49.4, lower than April's reading of 50.1. The official non-manufacturing PMI for May was 54.3 unchanged from April.
Shares of export-related players dropped due to yen appreciation against greenback. Shares of Fanuc Corp tumbled 2.7%, Yaskawa Electric declined 1.6%, Tokyo Electron shed 2.1% and Komatsu fell 2%. Toyota Motor, Advantest, Honda Motor, and Tokyo Electron declined in a range of 0.5% to 3%.
ECONOMIC NEWS: The Final Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) was 49.8, compared with a flash reading of 49.6 and a final 50.2 in the previous month, as export orders tumbled at the fastest pace in four months, underlining the growing economic impact of a bruising Sino-U.S. trade war. The 50-mark separates contraction from expansion, and the latest result dashed expectations that Japan's crucial manufacturing sector had started to bottom out after shrinking in both February and March. The final index for new export orders was 47.5, marking the sixth consecutive month of contraction, versus a preliminary 47.1 and a final 47.8 in April. New orders, a measure of domestic demand, also contracted last month in reflection of the increasing pressure on Japanese businesses, with several firms cutting their earnings forecasts recently.
CURRENCY NEWS: Japanese yen was little changed against greenback on Monday, as demand for safe heaven amid worries that's heightened trade tensions could derail global economic growth. The Japanese yen, often seen as a safe-haven currency, traded at 108.15 against the dollar after touching levels above 109.5 in the previous trading week.
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