Asian stocks tank below, US treasury in red as trade war feud persist

Asian shares fell on Tuesday, following a volatile Wall Street session as weak economic indicators and an intensifying Sino-U.S. trade war inflamed concerns about global growth, supporting safe-haven assets such as bonds.

Investor focus has shifted to monetary policy this week with Australia's central bank all but certain to cut interest rates to a fresh low at its meeting on Tuesday and India also tipped to ease on Thursday. Comments from the Federal Reserve on Monday, meanwhile, raised expectations the U.S. central bank is moving closer to a rate cut, as did a closely watched U.S. factory survey.

"Unless there's a circuit breaker, and it may come in terms of a Fed cut, or it may come in terms of more Chinese stimulus or the European Central Bank later this week...equity prices and bond rates are going to continue to go lower," said Greg McKenna, strategist at McKenna Macro. The ECB holds its next policy meeting on Thursday and is expected to keep settings unchanged though there is growing speculation it could shift to a more dovish footing.

Losses across Asian equity markets on Tuesday followed falls on Wall Street overnight that saw the Nasdaq drop into correction territory. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3%, after earlier rising as much as 0.18%. The broad index was pulled lower by Chinese shares. China's blue-chip CSI300 index was 1.17% lower, and the Hang Seng lost 0.65%.

Seoul's Kospi gave up 0.16%. Defying the regional selloff, Australian shares were up 0.1% ahead of the expected interest rate cut by the Reserve Bank of Australia, as the bank hopes to revive growth.

Japan's Nikkei gave up early gains to turn down 0.42%. Underscoring slowdown concerns, U.S. manufacturing growth eased in May to its weakest pace in more than two-and-a-half years, defying expectations for a modest rebound.

Hostile rhetoric between Washington and Beijing continued, on Monday as U.S. President Donald Trump's administration said that China was pursuing a "blame game" in recent public statements. Adding to broader investor worries are fears that U.S. antitrust regulators could target Alphabet, Facebook, Apple and Amazon.

News of U.S. government plans to investigate the tech giants dragged down tech shares on Monday, driving the Nasdaq 1.61% lower to 7,333.02. The drop took the index more than 10% lower than its May 3 closing record. The S&P 500 lost 0.28% to 2,744.45 and the Dow Jones Industrial Average eked out a 0.02% gain to 24,819.78.

BULLARD COMMENTS

U.S. Treasury yields rose slightly on Tuesday but remained near recent lows. U.S. 10-year notes yielded 2.1021%, up from a U.S. close of 2.081%, having touched its lowest level since September 2017 on Monday. The two-year yield rose to 1.8837% compared with a U.S. close of 1.84%. The fall in the two-year yield reflects raised expectations of a more accommodative Fed.

St. Louis Fed president James Bullard on Monday said that a U.S. interest rate cut "may be warranted soon" given risks to global growth posed by trade tensions and weak U.S. inflation. Gold was down 0.11% at $1,323.27 per ounce, but still near three-month highs, and Japan's yen strengthened, with the dollar dropping 0.05% against the Asian safe-haven to 108.01.

"Risk aversion has also been seen with the yen carry trade unwinding as the markets comprehend that the U.S. technology containment strategy towards China is unlikely to reverse," analysts at Jefferies said in a note. "In the short term, positioning has become so bearish that 'a ceasefire' could spark a risk rally."

The euro was 0.11% stronger at $1.1252, while the dollar index, which tracks the greenback against a basket of six major rivals, was up 0.03% at 97.175. Crude prices whipsawed, resuming their declines after a brief bounce on mounting trade worries. U.S. crude was down 0.24% at $53.12 a barrel and Brent crude dropped 0.42% to $61.02 per barrel. 

(With inputs from agencies.)