People walk past an electric sign displaying Japan’s Nikkei stock average outside a brokerage firm on April 18, 2023 in Tokyo, Japan. REUTERS/Issei Kato
SYDNEY, Aug 14 (Reuters) – Asian shares fell on Monday as China’s asset woes boosted the case for aggressive stimulus, while a rise in Treasury yields lifted the dollar to a 2023 yen high, despite Beijing appearing deaf to calls.
Geopolitics were of added concern after a Russian warship fired warning bombs at a cargo ship in the southwestern Black Sea on Sunday, signaling a new phase in the war that could affect oil and food prices.
MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) lost another 1.7% after falling 2% last week. Japan’s Nikkei (.N225) fell 1.3% as exporters drew support from a weaker yen.
Chinese blue chips (.CSI300) fell 1.2%, on top of last week’s 3.4% decline, amid disappointing economic news culminating in a dismal report on new bank loans in July.
Retail sales and industrial production figures are due on Tuesday and analysts expect them to decline, putting downward pressure on the yuan.
Adding to concerns about the deteriorating health of the country’s debt-laden property developers, two Chinese listed companies did not receive payments for maturing investment products from Zhongrong International Trust.
China’s Country Garden ( 2007.HK ), the country’s top private property developer, is set to halt trading in 11 of its offshore bonds from Monday.
EUROSTOXX 50 futures fell 0.4% and FTSE futures fell 0.2%. Sour sentiment sent S&P 500 futures and Nasdaq futures paring early gains by an easy 0.2% each.
That followed Friday’s losses, when a surprisingly high reading of US producer prices tested market confidence that inflation would cool enough to avoid further rate hikes.
Consumers continue to consume
US retail sales figures this week are forecast to show a 0.4% increase in spending, with higher risks due in part to Amazon’s Prime Day.
Analysts at BofA said data on credit and debit card spending suggested sales could rise 0.7% from last year due to activity around the July 4 holiday.
Such an outcome would challenge the market’s bearish outlook for rates, implying a 70% chance of a future Federal Reserve hike. The market has seen a cut of more than 120 basis points in next year’s prices since March.
Minutes from the central bank’s last meeting are due on Wednesday and could show members want to keep their options open on further hikes.
Analysts at Goldman Sachs argue that the market has gone too far in pricing in aggressive easing.
“The impetus for tapering outside of a recession is to normalize the funds rate from a control level toward neutral once inflation approaches the target,” they wrote in a note.
“Normalization is not a particularly urgent push to cut, which is why we also see a significant risk that the Fed will remain steady.”
They expect a cut of only 25 basis points a quarter starting in the second quarter of next year, with the funds rate eventually stabilizing at 3-3.25%.
After rising 12 basis points last week, the 10-year Treasury yield was at 4.18% amid a sluggish economy and truly massive government debt demand.
That rise juiced the dollar against the lower-yielding yen, lifting it to 145.22 and a peak not seen since November last year. Concerns about a possible intervention then returned to 144.92.
“The nearly 5% lift in USD/JPY since mid-July could prompt Japanese officials to warn against a rapid yen weakening,” said Christina Clifton, currency strategist at CBA.
“Yet markets are hopeful that the BOJ will not tighten policy in the near future due to continued bad news from the BOJ.”
The euro has already hit its highest since late 2008 and was firm at 158.51 yen. The single currency was at a higher range against the dollar at $1.0933.
The dollar was also climbing against its Australian and New Zealand counterparts, along with a range of emerging Asian currencies, all thrown in as proxies for China risk.
Dollar gains and yields weigh gold at $1,912 an ounce, the third straight week of declines.
Oil prices are headed in the other direction as tight supply meets forecasts of strong demand delivering seven weeks of gains.
On Monday, some of the gainers nudged Brent down 78 cents to $86.03 a barrel, while U.S. crude fell 76 cents to $82.43 a barrel.
Reporting by Wayne Cole; Editing by Sri Navaratnam and Sam Holmes
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