Most Asian stocks swung lower on Tuesday, weighed by Chinese markets after data showed mainland factory prices shrinking at their fastest pace in three years while reports of German stimulus plans pushed global bond prices down.
China's producer price index fell 0.8% in August year-on-year, official data showed on Tuesday, its sharpest decline since August 2016 as flagging demand at home and abroad forced some businesses to slash prices.
The data pushed blue chip shares in China .CSI300 down 0.76%, which in turn drove an index of Asian stocks outside of Japan .MIAPJ0000PUS 0.3% lower, having traded flat earlier in the session.
"Globally inflationary pressure remains subdued, so in that sense China is not an outlier," said Sean Darby, global equity strategist at Jefferies in Hong Kong.
"People are positioned very bearish, but I don't think the market wants to be too bearish. Bond yields are reversing. Markets are a little more unsure about their expectations for central banks, because a lot of easing is already priced in."
US stock futures ESc1 were down 0.08% in Asia after the S&P 500 .SPX ended flat in New York on Monday. Australian shares were down 0.49%. Bucking the trend, Japan's Nikkei stock index .N225 rose 0.2%.
Investor focus shifts to the European Central Bank, which is widely expected to introduce a package of monetary easing and stimulus measures on Thursday to offset the effects of an ongoing US-Sino trade war and a global economic slowdown.
The US Federal Reserve is also widely expected to cut interest rates next week as policymakers race to shield the global economy from risks, which also include Britain's planned exit from the European Union.
"Bond yields had fallen so far so fast that they were due for a pullback, and you have some nerves setting in before the ECB," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.
"The move in bond yields will affect share prices, but its still uncertain how stocks will react. Over the next six months sentiment around global growth will improve, but some of the risks remain to be resolved."
Germany's 10-year Bund yield rose to a one-month high at minus 0.565% DE10YT=RR, while longer-dated 30-year bond yields DE30YT=RR closed at minus 0.036% on Monday.
Germany is considering setting up independent public agencies that could take on new debt and invest in the economy, three people familiar with talks about the plan told Reuters.
Europe's largest economy is teetering on the brink of recession, but strict national spending rules have tied policymakers hands on fiscal policy.
The sell-off in German debt pushed 10-year Treasury yields US10YT=RR to a four-week high of 1.6489% in Asia on Tuesday.
The Treasury yield curve US2US10=TWEB steepened on Tuesday as long-term yields traded above short-term yields in a sign of receding concern about the economic outlook.
The rise in Treasury yields helped the dollar rise to a five-week high of 107.50 yen JPY=EBS.
Last month the curve inverted for the first time since 2007 when long-term yields traded below short-term yields, which is a widely accepted indicator of coming recession.
Yields on 10-year Japanese government bonds JP10YTN=JBTC also rose to a four-week high of minus 0.220%.
Benchmark 10-year Australian government bond futures YTCc1 fell 6.25 ticks to 98.90, approaching a five-week low.
Elsewhere in currency markets, the pound GBP=D3 traded near a six-week high of $1.2385 after a law came into force demanding that Prime Minister Boris Johnson delay Britain's departure from the European Union unless he can strike a divorce deal.
Oil futures hit their highest level in six weeks in Asia after Saudi Arabia's new energy minister confirmed he would stick with his country's policy of limiting crude output to support prices.
US crude CLc1 rose 0.73% to $58.34 a barrel, the highest since July 31.
Prince Abdulaziz bin Salman, who became Saudi Arabia's new energy minister on Sunday, told reporters there would be "no radical" change in Saudi's oil policy. Saudi Arabia is OPEC's de facto leader.