Asian stocks fall as inflation doubts linger: Markets pull back

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(Bloomberg) – Stocks in Asia fell after the rally in US bonds and stocks hit a wall on Friday as the Federal Reserve can’t yet claim victory over inflation.

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Shares fell in mainland China, South Korea and Australia. Japanese markets are closed for a holiday while trading in Hong Kong is likely canceled due to a storm.

China’s central bank kept its medium-term lending facility unchanged on Monday despite growing market calls for more stimulus. Traders will also analyze gross domestic product figures which will be clouded by the basic effects of Shanghai’s lockdown last year. Bloomberg Economics sees GDP growth slowing after ‘cutting out statistical noise’. The pace of retail sales and industrial production is also expected to slow.

The offshore yuan was little changed after the People’s Bank of China earlier extended support for the currency.

Contracts for the S&P 500 and Nasdaq 100 were slightly lower as trading started in Asia. The underlying indices posted small losses on Friday, with traders citing consolidation after a rally that still led the S&P 500 to its best week since mid-June.

The dollar was little changed on Monday after an indicator of greenback strength snapped a five-day losing streak on Friday. The currency’s weekly decline has brought the index back close to levels last seen in April 2022, with some strategists and investors suggesting its long bull run is over.

The yen edged higher after Bank of Japan Governor Kazuo Ueda said uncertainty remained elevated over the US and global economies. He also said there was not much change in the functionality of the Japanese bond market since the previous monetary policy meeting in June.

Yields on Australian policy-sensitive three-year bonds stabilized while yields on 10-year bonds rose slightly by one basis point.

There is no cash treasury bond trading in Asia on Monday due to the Japanese holiday. The two-year Treasury yield rose 14 basis points on Friday after a report showed U.S. consumer sentiment hit a nearly two-year high. This contrasted with the fall in yields over the previous days.

“We believe it is premature to declare victory over inflation and expect volatility to remain elevated in the near term,” JPMorgan Chase & Co. strategists led by Phoebe White wrote in a note, even after further data last week “reignited the market narrative surrounding pristine disinflation and a soft landing,” they said.

Cautious tone

Fed Governor Christopher Waller said last week he expected two more rate hikes this year to bring inflation back to the 2% target, although more good price data could obviate the need for a second hike.

Swap prices show the Fed is virtually certain to raise its benchmark rate another 25 basis points at its meeting this month, with about a third chance it will make another such move before to stop its cycle.

Investors also scrutinized results from JPMorgan, Wells Fargo & Co. and Citigroup Inc., which easily beat analysts’ lowered estimates. UnitedHealth Group Inc. jumped as profits dispelled fears of spiraling medical costs.

Elsewhere, oil extended the decline as a major Libyan field resumed production after protesters who shuttered the facility ended their protest. Gold has changed little.

Key events this week:

  • Retail sales, industrial production, investment and GDP in China, Monday

  • G-20 finance ministers and central bankers meet in India on Monday

  • European Central Bank President Christine Lagarde speaks on Monday

  • Making America’s Empire, Monday

  • U.S. retail sales, industrial production, business inventories, cross-border investment, Tuesday

  • Eurozone, UK CPI, Wednesday

  • Housing starts in the United States, Wednesday

  • Chinese prime lending rates, Thursday

  • US Initial Unemployment Claims, Existing Home Sales, Conf. Council leading index, Thursday

  • Japan CPI, Friday

Some of the major movements in the markets:

Shares

  • S&P 500 futures were little changed at 10:31 a.m. Tokyo time. The S&P 500 fell 0.1% on Friday

  • Nasdaq 100 futures were little changed. The Nasdaq 100 was little changed on Friday

  • South Korea’s Kospi index fell 0.2%

  • China’s Shanghai Composite Index fell 0.9%

  • Australia’s S&P/ASX 200 index was little changed

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.1224

  • The Japanese yen rose 0.2% to 138.51 per dollar

  • The offshore yuan was little changed at 7.1565 to the dollar

  • The Australian dollar fell 0.1% to $0.6831

Cryptocurrencies

  • Bitcoin was little changed at $30,285

  • Ether fell 0.3% to $1,923.79

Obligations

Goods

This story was produced with assistance from Bloomberg Automation.

–With help from Rita Nazareth and Joanna Ossinger.

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