Asian Markets Fall Ahead of US Inflation Data

Asian markets mostly fell on Monday as investors turned their attention to a key US inflation report due later this week, hoping for a reading that will ease concerns about the Federal Reserve’s interest rate plans.

Wall Street and Europe Gain, Asia Lags Behind

While Wall Street and European shares enjoyed a bright end to last week, Asia continued its weak run, with China’s economic struggles weighing on sentiment. With few catalysts to drive activity, Wednesday’s US consumer price index figures are a focal point, particularly as the Fed has insisted its future rate decisions would be driven by data.

Traders have been in retreat over the past week after a string of readings suggested the economy and labour market remained resilient despite more than a year of monetary tightening. That has revived talk that the central bank could lift rates again before the end of the year or keep them elevated for an extended period. The bank policy board is due to meet next week.

Asian Markets Fall Ahead of US Inflation Data
Asian Markets Fall Ahead of US Inflation Data

“The data remains indicative of the fact that even if the Fed were to pause in September, they would potentially not close the doors to further tightening,” said Saxo Group’s Redmond Wong.

In early trade Monday, Hong Kong led losses, giving up more than one percent as it played catch-up with a regional retreat Friday, when the city was shut down by a heavy storm. Tokyo, Sydney, Singapore, Taipei, Manila and Jakarta were also down, though Shanghai and Seoul posted small gains.

US Treasury Secretary Optimistic About Soft Landing

US Treasury Secretary Janet Yellen looked to calm worries that the long-running rate hikes would cause a recession in the world’s top economy, saying she was optimistic it was on course for a soft landing.

“I am feeling very good about that prediction,” she said Sunday. “I think you’d have to say we’re on a path that looks exactly like that.” She added: “Every measure of inflation is on the road down.”

On currency markets, the yen picked up after sinking last week to a 10-month low against the dollar, with support coming from comments seen as hawkish by Bank of Japan boss Kazuo Ueda. He told the Yomiuri newspaper that policymakers would have a better idea later in the year about wage rises, a key data point for rate decisions.

The yen has tumbled around 10 percent owing to the BoJ’s refusal to move away from its ultra-loose monetary policy, even as the Fed pushed borrowing costs to a two-decade high.

“In this economic cycle, major G10 central banks have typically begun raising interest rates when core inflation has risen by two percentage points above their inflation target,” said Stephen Innes at SPI Asset Management. “Japan finds itself precisely at that juncture. Reflecting on past experiences, many central banks tightened their monetary policies too late, initially viewing inflation increases as transitory.”

China’s Economic Data in Focus

China will also report more data this week, including industrial production, retail sales and fixed asset investment. Investors will be looking for signs of recovery in the world’s second-largest economy, which has been hit by a series of shocks recently.

China’s growth slowed sharply in the second quarter as authorities struggled to contain a Covid-19 outbreak and clamp down on property speculation and high debt levels. The country also faces power shortages, supply chain disruptions and regulatory crackdowns on various sectors.

Analysts expect China’s growth to moderate further in the third quarter, but some are hopeful that policy easing and fiscal stimulus will help cushion the slowdown.

“China’s economy is facing multiple headwinds,” said Louis Kuijs at Oxford Economics. “But we expect some improvement in Q4 as consumption recovers from Covid-19 related weakness and policy support strengthens.”

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