Asia shares mixed, China cuts rates as data disappoints

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

SYDNEY, Aug 15 (Reuters) – Asian shares were mixed on Monday after China’s central bank trimmed key lending rates as a raft of economic data missed forecasts and underscored the need for more stimulus to support the world’s second-largest economy.

Both retail sales and industrial production rose less than expected in July, which contributed to a disappointing reading on new bank lending.

The rate cut helped soften the blow a bit and left Chinese blue chips (.CSI300) steady, while yuan and bond yields fell. read more

“These are further signs that post-lockdown growth in Shanghai is weakening rapidly,” said Alvin Tan, a strategist at RBC. “Monetary policy is losing its footing apart from possibly the exchange rate, with exports being the one bright spot in the economy.”

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

Japan’s Nikkei (.N225) rose 1.1% as data showed the economy grew 2.2% year-on-year in the second quarter, just a touch short of estimates. read more

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

“Wednesday’s FOMC minutes should reinforce the hawkish tone of recent Fed speakers that they are nowhere near done with interest rates and inflation,” warned Tapas Strickland, chief financial officer at NAB.

Markets still suggest around a 50% chance that the Fed will raise by 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 soft economic landing will also get a health check from US retail sales data which is expected to show a sharp decline in spending in July.

There is also a risk that earnings from major retailers including Walmart ( WMT.N ) and Target ( TGT.N ) could be peppered with warnings of a slowdown in demand.

Geopolitical risk remains high with a delegation of US lawmakers in Taiwan for a two-day trip. read more

EUROSTOXX 50 futures rose 0.4% and FTSE futures rose 0.5%. S&P 500 futures and Nasdaq futures were both down around 0.2% after last week’s gains.

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

PEAK INFLATION

“The leading indicators we observe provide support for moderation with easing supply pressures, weakening demand, collapsing money supply, falling prices and falling expectations,” analysts at BofA said.

“Key components of headline inflation, including food and energy, are also at an inflection point. Both Wall Street and Main Street now expect inflation to moderate.”

The bond market still appears doubtful that the Fed can produce a soft landing, with the yield curve still deeply inverted. Two-year yields of 3.26% are 42 basis points higher than for 10-year bonds.

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

The euro held at $1.0249, after jumping 0.8% last week, although it edged away from resistance around $1.0368. Against the yen, the dollar stabilized at 133.23 after losing 1% last week.

“Our feeling remains that the dollar rally will resume before too long,” argued Jonas Goltermann, senior economist at Capital Economics.

“It will take a lot more good news on inflation before the Fed changes tack. The minutes from the last FOMC meeting and the Jackson Hole conference may well push further back against the notion that the Fed is ‘pivoting’.”

The dollar’s retreat provided something of a reprieve for gold, which held around $1,794 an ounce, after gaining 1% last week.

Oil prices fell as China’s disappointing data raised concerns about global fuel demand.

The head of the world’s biggest exporter, Saudi Aramco, said it is poised to boost production as output at several offshore platforms in the US Gulf of Mexico resumes after a brief shutdown last week.

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

Reporting by Wayne Cole; Editing by Sam Holmes and Raju Gopalakrishnan

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