14-8-2023 (SYDNEY) Asian shares faced difficulties on Monday as investors awaited key data from China, which could reinforce the need for significant stimulus measures. However, Beijing’s response to these calls remains uncertain. Additionally, rising Treasury yields put pressure on the lofty valuations of tech stocks and supported the strengthening of the dollar.
Geopolitical tensions added to market worries after a Russian warship fired warning shots at a cargo ship in the southwestern Black Sea on Sunday. This development signaled a new phase of the conflict that could potentially impact oil and food prices.
MSCI’s broadest index of Asia-Pacific shares, excluding Japan, declined by 0.2% following a 2% drop last week. Japan’s Nikkei also slipped by 0.1%, although exporters received some support from the weakening yen.
Chinese blue chips experienced a 3.4% loss last week, largely due to a series of disappointing economic reports. The latest report on new bank loans in July was particularly bleak. Market analysts anticipate that upcoming figures on retail sales and industrial output, scheduled for Tuesday, will also fall short of expectations, maintaining downward pressure on the yuan.
Concerns over the deteriorating financial health of China’s debt-laden property developers were further exacerbated by news that two listed Chinese companies did not receive payment on maturing investment products from Zhongrong International Trust Co. China’s top private property developer, Country Garden, is set to halt trading of its 11 onshore bonds starting from Monday.
In early trading, S&P 500 futures showed a 0.2% gain, while Nasdaq futures edged up by 0.3%. This followed losses on Friday when unexpectedly high readings on U.S. producer prices tested market optimism that inflation would cool down enough to avoid further interest rate hikes.
Consumer spending in the U.S. is expected to pick up, with forecasts indicating a 0.4% increase in retail sales this week, partially driven by Amazon’s Prime Day. Analysts at BofA suggest that data on credit and debit card spending indicate sales could rise by 0.7%, with stronger activity around the July 4th holiday compared to last year.
Such an outcome would challenge the market’s optimistic outlook on interest rates. Currently, futures imply a 70% chance that the Federal Reserve has finished hiking rates, with more than 120 basis points of cuts priced in for next year, starting around March.
The minutes of the Fed’s latest meeting, scheduled for release on Wednesday, could reveal that some members wanted to keep their options open for further rate hikes. Analysts at Goldman Sachs argue that the market has overestimated the extent of expected easing, asserting that cuts of only 25 basis points per quarter will likely begin in the second quarter of next year. They project that the funds rate will eventually stabilize at 3-3.25%.
Despite the rise in Treasury yields, which reached 4.176% after a 12 basis points increase last week, the dollar gained strength against the low-yielding yen, nearing a yearly high. The euro remained firm at 158.51 yen, having already reached its highest level since late 2008. Against the dollar, the euro traded in a relatively narrow range at $1.0942.
As the dollar and yields rose, the price of gold faced downward pressure, declining to $1,914 per ounce. This marks the third consecutive week of losses for the precious metal.
On the other hand, oil prices continued their upward trend as tight supply met expectations of robust demand, resulting in seven weeks of consecutive gains. However, profit-taking activities caused Brent crude to slide by 45 cents to $86.36 per barrel early on Monday, while U.S. crude fell by 39 cents to $82.80 per barrel.
