Asian stocks dipped early Wednesday after poor US economic data stoked global recession fears and further soured investor sentiment already hurt by heightened trade war concerns.

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Safe-haven government bonds fared well in the wake of risk aversion in the broader markets, with the benchmark US Treasury yield touching its lowest level in three years.

The US manufacturing sector contracted in August for the first time since 2016 amid worries about a weakening global economy and rising trade tensions between China and the United States, the Institute for Supply Management’s (ISM) report on Tuesday showed.

MSCI’s broadest index of Asia-Pacific shares outside Japan was a shade lower after losing 0.85 percent the previous day.

Australian stocks lost 0.8 percent and Japan's Nikkei fell 0.3 percent.

“There isn’t much going for the equity market following the weak US ISM reading and with US-China trade talks seemingly bogging down,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“As the decline in US yields show, the markets will be urging the Fed on to do more even though a September rate cut is already priced in,” Ichikawa said.

According to CME’s FedWatch tool, traders have almost fully priced in a 25 basis point (bp) interest rate cut at the Fed’s Sept. 17-18 policy meeting while expectations for another 25 bp reduction being implemented at the October meeting have risen to 61 percent from 53 percent over the past month.

The 10-year US Treasury yielded 1.459 percent after stooping to 1.429 percent on Tuesday, its lowest since July 2016.

VOLATILE POUND

While a decline in US yields usually weighs on the dollar, the greenback was partially underpinned by safe-haven demand generated by worries of a possible chaotic British exit from the European Union - though that possibility later diminished with a setback in parliament late Tuesday for British Prime Minister Boris Johnson.

The dollar index against a basket of six major currencies stood at 98.939 after rising overnight to 99.37, its highest level since May 2017.

Sterling was last at $1.2090 after falling on Tuesday to $1.1959, the lowest level since October 2016.

The pound’s strengthening back to about $1.20 came after a cross-party alliance defeated Johnson in an effort to block a “no-deal” Brexit, leading the premier to push for a snap election.

The euro was steady at $1.0973 after sliding to a 28-month low of $1.0926 overnight as investors braced for a potential interest rate cut by the European Central Bank next week.

US crude oil futures dipped 0.04 percent to $53.92 per barrel, adding to the previous day’s losses. The contracts had shed more than 2 percent on Tuesday after the weak US ISM data raised concerns about a weakening global economy.

First Published:Sept 4, 2019 6:59 AM IST