Asian shares struggled on Monday ahead of China data that is likely to amplify the case for serious stimulus even as Beijing seems deaf to the calls. The MSCI’s broadest index of Asia-Pacific shares outside Japan eased another 1.1%, after shedding 2% last week. Japan’s Nikkei was off 0.5%, even as exporters drew support from the weak yen.
Chinese blue chips lost 1.1%, on top of a 3.4% decline last week, amid a string of disappointing economic news culminating in a dire report on new bank loans in July. Figures on retail sales and industrial output are due Tuesday and analysts assume they will underwhelm, keeping downward pressure on the yuan.
Adding to concerns about the deteriorating health of the country’s debt-laden property developers was news two Chinese listed companies had not received payment on maturing investment products from Zhongrong International Trust Co. China’s Country Garden, the country’s top private property developer, is also set to suspend trading of its 11 onshore bonds from Monday.
U.S. Retail Sales in Focus; Fed Minutes Awaited
The sour mood in Asia contrasted with a positive session on Wall Street on Friday, where the S&P 500 and Nasdaq closed at record highs after surprisingly high readings on U.S. producer prices tested market optimism that inflation would cool enough to avoid further rate hikes.
Figures on U.S. retail sales this week are forecast to show a 0.4% pick up in spending, with risks on the high side thanks in part to Amazon’s Prime Day. Analysts at BofA say data on credit and debit card spending suggests sales could rise 0.7% with activity around the July 4th holiday stronger than last year.
Such an outcome would challenge the market’s benign outlook for rates, with futures implying a 70% chance the Federal Reserve is done hiking. The market also has more than 120 basis points of cuts priced in for next year starting from around March.
Minutes of the Fed’s last meeting are due on Wednesday and could show members wanted to keep their options open on further hikes. Analysts at Goldman Sachs argue the market has gone too far in pricing in aggressive easing. “The motivation for cutting outside of a recession would be to normalise the funds rate from a restrictive level back toward neutral once inflation is closer to the target,” they wrote in a note.
Dollar Hits 2023 High Against Yen; Oil Eases
The resilience of the U.S. economy combined with a truly massive government borrowing requirement kept 10-year Treasury yields up at 4.176%, after a rise of 12 basis points last week. That rise juiced the dollar against the low-yielding yen, lifting it to 144.90 and within a whisker of the year’s high of 145.07.
The greenback was less impressive against other currencies, as investors awaited more clarity on the Fed’s policy outlook. The euro edged up to $1.1415, while the dollar index dipped to 96.789.
Oil prices eased on Monday as a stronger dollar and concerns about China’s demand weighed on the market. Brent crude futures fell 29 cents, or 0.3%, to $86.52 a barrel, while U.S. crude futures slipped 18 cents, or 0.2%, to $83.76 a barrel.
Geopolitics was an added worry after a Russian warship on Sunday fired warning shots at a cargo ship in the southwestern Black Sea, heralding a new stage of the war that could impact on oil and food prices.