(Corrects paragraph 7 the name of the bank for ING)
HONG KONG / WASHINGTON (Reuters) – Asian stocks reversed their previous gains on Tuesday, pulled down by declines in Chinese markets, which were shaken by a new round of sanctions, after the retreat of inflation fears helped to sustain the broadest sentiment in the region.
Investors now await a close-up appearance in Congress of US Federal Reserve President Jerome Powell and Treasury Secretary Janet Yellen.
The negative sentiment seems to weigh on European stocks, with EUROSTOXX 50 futures falling 0.42% and FTSE futures 0.61%.
S&P 500 futures were down 0.28%.
MSCI’s broader Asia-Pacific stock index outside Japan fell 0.76%, hampered by a 1.42% drop in Chinese blue chips.
The United States and other countries, including the European Union, sanctioned Chinese officials on Monday for human rights abuses in Xinjiang, and Beijing responded with punitive measures against European lawmakers, diplomats, institutes and families.
“The drop may be due to sanctions,” said Iris Pang, chief economist for Greater China at ING Wholesale Banking. “More international policy pressure will affect asset markets.”
Jin Jing, an analyst at China Fortune Securities, said the sanctions hurt the risk appetite, particularly for foreign investors, who sold shares through Stock Connect.
Persistent concerns about tightening domestic policy also continued to weigh on rising sectors and highly rated stocks, as investors became more cautious.
Hong Kong’s Hang Seng index also fell 1.62%, with traders’ attention drawn to a lukewarm market debut for Baidu, in which the Chinese tech giant’s shares were barely traded above its secondary listing price.
In addition to China, Asian stocks were mixed. Japan fell 0.61% and Australia fell 0.11%, both having previously tracked overnight gains on Wall Street, but emerging markets in the region outperformed.
The Dow Jones Industrial Average was up 0.32%, the S&P 500 was up 0.70% and the Nasdaq Composite was up 1.23%, helped by a drop in Treasury yields.
10-year benchmarks yielded 1.6717%, compared to 1.732% on Friday.
Powell said in comments prepared for a Congressional hearing that the US recovery has progressed “more quickly than generally expected and appears to be strengthening.”
“Last week’s FOMC made it very clear what the Fed’s view of rates is … the next thing markets will focus on is perhaps getting some details from Yellen regarding more infrastructure investments,” said Alex Wolf, director of strategic investment for Asia at JP Morgan Private Bank, referring to a statement by the Federal Open Market Committee.
The dollar gained slightly against a basket of six major currencies in the latest 91.887 trades, having dropped 0.32% on Monday, as it advanced against the kiwi, Australian and British pound.
The New Zealand dollar hit its biggest low in three months after the government introduced taxes to curb real estate speculation, a move investors believe could allow the central bank to keep interest rates lower for longer with less risk of a housing bubble.
Oil also fell amid ample supply and concerns that further restrictions on the pandemic and sluggish vaccine launches in Europe will slow the recovery in fuel demand.
US West Texas intermediate crude oil futures
(This story corrects the bank’s name in paragraph 7 for ING)
Reporting by Alun John in Hong Kong Chris Prentice in Washington; Additional reporting by Luoyan Liu in Shanghai; Editing by Sam Holmes and Gerry Doyle