(Bloomberg) — Stocks in Asia dropped on worries that further rate hikes are needed to tame inflation. China’s economic data further weighed on sentiment.
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Shares in mainland China were the worst performers in the region as investors parsed data that showed growth for the second quarter missed estimates. Gross domestic product expanded 6.3% in the second quarter from a year prior, weaker than the median forecast of 7.1% from economists surveyed by Bloomberg.
The onshore and offshore yuan weakened. The People’s Bank of China earlier extended support for the currency, but kept its medium-term lending facility unchanged Monday despite mounting market calls for more stimulus.
“Evidence of a broad slowdown in the Chinese economy” caused the yuan to fall, according to Fiona Lim, senior FX strategist at Malayan Banking Bhd in Singapore. She said there may be some consolidation in the currency, given the more benign environment with Treasuries and the greenback.
Shares fell in South Korea and were steady in Australia. Japanese markets are shut for a holiday while morning trading in Hong Kong is canceled due to a storm.
Contracts for the S&P 500 and Nasdaq 100 were lower in Asia. The rally in US stocks hit a wall Friday after a report showed consumer sentiment climbed to an almost two-year high, reinforcing the view that the Federal Reserve still has a long way to go to bring inflation down.
The dollar was little changed Monday after a gauge of greenback strength snapped a five-day losing streak Friday. The currency’s weekly slide has the index back near levels last seen in April 2022 as some strategists and investors suggest its long bull run is over.
The yen edged higher after Bank of Japan Governor Kazuo Ueda said uncertainty remains high over the US and global economies. He also said there wasn’t much change in Japan’s bond-market functionality from the previous monetary policy meeting in June.
Yields on Australia’s policy-sensitive three-year notes steadied while those on 10-year bonds edged up two basis points. The Australian dollar, which is sensitive to China’s economic outlook, weakened.
There’s no trading of cash Treasuries in Asia Monday due to the holiday in Japan. Yield on the two-year Treasury rose by 14 basis points Friday following the consumer sentiment report. That was a contrast to the slide in yields over the preceding few days.
“We think it is premature to declare victory on inflation and expect volatility to remain elevated over the near term,” JPMorgan Chase & Co. strategists led by Phoebe White wrote in a note, even after other data last week “revived the market narrative surrounding immaculate disinflation and a soft landing,” they said.
Cautious Tone
Fed Governor Christopher Waller said last week he expected two more rate increases this year to bring inflation down to the 2% goal, though more good data on prices could obviate the need for the second hike.
Swaps pricing show expectations the Fed is virtually certain to raise its benchmark rate by another 25 basis points when it meets this month, with a roughly one-third chance it will make one more such move before stopping its cycle.
“It’s much more likely that we get a bumpy landing,” Kristina Hooper, chief global market strategist at Invesco, said on the US economy on Bloomberg Television. “There will be some economic damage from this, especially the longer the Fed goes tightening.”
Elsewhere, oil extended declines as a major Libyan field resumed output after protesters that shut the facility ended their demonstration. Gold was little changed.
Key events this week:
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G-20 finance ministers and central bankers are meeting in India, Monday
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European Central Bank President Christine Lagarde speaks, Monday
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US empire manufacturing, Monday
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US retail sales, industrial production, business inventories, cross-border investment, Tuesday
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Eurozone, UK CPI, Wednesday
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US housing starts, Wednesday
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China loan prime rates, Thursday
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US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
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Japan CPI, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 11:08 a.m. Tokyo time. The S&P 500 fell 0.1% Friday
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Nasdaq 100 futures were little changed. The Nasdaq 100 was little changed Friday
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South Korea’s Kospi Index fell 0.2%
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China’s Shanghai Composite Index fell 0.9%
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Australia’s S&P/ASX 200 Index was little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1221
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The Japanese yen rose 0.2% to 138.59 per dollar
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The offshore yuan fell 0.1% to 7.1664 per dollar
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The Australian dollar fell 0.2% to $0.6825
Cryptocurrencies
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Bitcoin was little changed at $30,305.8
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Ether was little changed at $1,927.54
Bonds
Commodities
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West Texas Intermediate crude fell 0.8% to $74.79 a barrel
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Spot gold fell 0.1% to $1,953.02 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth, Joanna Ossinger and Chester Yung.
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