Asian stocks mixed, China cut interest rates with disappointing data

FILE PHOTO – People pass an electronic screen displaying Japan’s Nikkei stock price index inside a conference hall in Tokyo, Japan, June 14, 2022. REUTERS/Issa Kato

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  • The Nikkei rose, the S&P 500 fell
  • People’s Bank of China (PBOC) cuts key interest rates, China data misses expectations
  • Eyes on Fed Minutes, US Retail Sales and Earnings

SYDNEY (Reuters) – Asian stocks were mixed on Monday after China’s central bank cut key lending rates as a batch of economic data missed expectations and emphasized the need for more stimulus to support the world’s second largest economy.

Retail sales and industrial production both rose less than expected in July, adding to the disappointing reading on new bank lending.

The interest rate cut helped soften the blow a bit and left China’s blue-chip stocks (.CSI300) flat, while yuan and bond yields fell. Read more

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“These are further signs that the growth rebound after the Shanghai shutdown is rapidly weakening,” said Alvin Tan, strategist at RBC. “Monetary policy is losing steam except for the possibility that the exchange rate with exports being the bright spot in the economy.”

MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS) was flat, having rebounded 0.9% last week.

Japan’s Nikkei (.N225) rose 1.1% as data showed that the economy grew at an annualized rate of 2.2% in the second quarter, slightly below estimates. Read more

Investors remain anxious to see if Wall Street can maintain its rally as hopes that US inflation has peaked will be tested by potentially hawkish comments from the Federal Reserve this week.

Tapas Strickland, director of economics at NAB, cautioned that “Wednesday’s FOMC meeting minutes will reinforce the hawkish tones from Fed speakers recently about getting close to nothing on inflation and inflation.”

Markets are still indicating a 50% chance that the Fed will raise 75 basis points in September and that interest rates will rise to around 3.50-3.75% by the end of the year.

Hopes of a weak economic downturn will also get a health check from US retail sales data which is expected to show a sharp slowdown in spending in July.

There are also risky earnings from major retailers, including Walmart (WMT.N) and Target (TGT.N), that could be rife with warnings about plunging demand.

Geopolitical stakes remain high with a delegation of US lawmakers in Taiwan on a two-day trip. Read more

EUROSTOXX 50 futures are up 0.4% and FTSE futures are up 0.5%. S&P 500 and Nasdaq futures are down about 0.2% after last week’s gains.

Still, the S&P is nearly 17% above its mid-June lows and just 11% off all-time highs on bets that the worst of inflation is over, at least in the US.

Peak inflation

“The leading indicators we are observing provide support for moderation as supply pressures ease, demand weaken, money supply collapses, prices fall and expectations decline,” said analysts at Bank of America.

“The main components of general inflation, including food and energy, are also at an inflection point. Both Wall Street and Main Street now expect inflation to decline.”

The bond market still appears to doubt the Fed’s ability to make a soft landing, with the yield curve continuing to be deeply inverted. The two-year yield at 3.26% is 42 basis points higher than the 10-year bond yield.

These returns supported the US dollar, although it fell 0.8% against a basket of currencies last week as risk sentiment improved.

The euro settled at $1.0249, having rebounded 0.8% last week, although it moved away from resistance around $1.0368. Against the yen, the dollar settled at 133.23 after losing 1% last week.

“We still feel that the dollar’s rally will resume before too long,” said Jonas Goltermann, chief economist at Capital Economics.

“It will take a lot of good news on inflation before the Fed changes. The minutes from the last FOMC meeting and Jackson Hole conference may push further back against the notion that the Fed is ‘moving in.'”

The decline in the dollar provided something of a hold for gold, which was holding around $1,794 an ounce, after gaining 1% last week.

Oil prices fell as disappointing Chinese data added to concerns about global fuel demand.

The head of Saudi Aramco, the world’s largest exporter, said it was ready to ramp up production while resuming production at several US offshore platforms in the Gulf of Mexico after a short break last week.

Brent crude fell 99 cents to $97.16, while US crude fell 89 cents to $91.20 a barrel.

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Reporting from Wayne Cole. Editing by Sam Holmes and Raju Gopalakrishnan

Our Standards: Thomson Reuters Trust Principles.

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