Asian Shares Fall as Central Banks Signal Higher Interest Rates; Eyes on Inflation Data
SYDNEY, Sept 25 (Reuters) – Asian shares fell on Monday, dragged down by China, after central banks last week reinforced the message that interest rates would stay higher for longer. Investors are also bracing for inflation data from the U.S. and Europe.
Markets in Asia will be closely watching for signs of China’s economic recovery, especially with a week-long national holiday set to begin on Friday, which will serve as a key test for consumer spending.
The Japanese yen remained volatile, hovering near the closely watched 150 per dollar level amid fears of intervention. The Bank of Japan made no changes to its dovish monetary policy, and Governor Kazuo Ueda is scheduled to give a speech and answer questions from 14:30 local time.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.6%, inching closer to a ten-month low reached just last week. Meanwhile, Japan’s Nikkei rose 0.7%.
Chinese blue-chip stocks eased 0.5% after a 1.8% rise on Friday, while Hong Kong’s Hang Seng index slumped 1.1%, giving back about half of Friday’s gains.
S&P has lowered its forecast for China’s economic growth in 2023 to 4.8% from 5.2%, citing limited fiscal and monetary easing.
“Policymakers’ emphasis on containing leverage and financial risks has increased the bar for macro stimulus,” said Louis Kuijs, Asia-Pacific chief economist.
The industrial profit figures on Wednesday and the manufacturing and services PMIs on Saturday will be a big test for China’s economy in the week ahead.
In the bond market, investors are still reeling from the U.S. Federal Reserve’s more hawkish rate projections, which caught markets by surprise. With the recent economic resilience in the U.S. economy, market expectations for rate cuts have been drastically scaled back, leading to a bond sell-off.
“What’s driven the move this year is the acceptance that inflation shock isn’t transitory, but is going to require restrictive monetary policy for much longer than we first thought,” said Andrew Lilley, chief rates strategist at Barrenjoey.
Ten-year Treasury yields inched up 2 basis points to 4.4580% on Monday, after retreating from a 16-year high of 4.508% on Friday. Two-year yields were little changed at 5.1162%, having fallen from a 17-year top of 5.2020% hit last week.
U.S. data will play a crucial role in determining market trends. U.S. business activity in September remained stagnant, with the services sector idling at its slowest pace since February.
Bruce Kasman, chief economist at JPMorgan, expects positive results for U.S. and European inflation, which should show low core inflation readings.
The Federal Reserve’s favored inflation gauge, the core Personal Consumption Expenditures Price Index, is expected to show a 0.2% monthly increase for August, unchanged from July. Other U.S. data to watch for this week includes final Q2 GDP and weekly jobless claims. Euro zone inflation figures for September are due on Friday.
In the currency markets, the U.S. dollar held near its six-month high at 105.60 against a basket of major currencies. The yen traded at 148.41 per dollar, after hitting a fresh 10-month low of 148.49 earlier in the day.
Oil prices remained marginally higher, not far from their 10-month highs. Brent crude futures rose 0.2% to $93.39 per barrel, while U.S. West Texas Intermediate crude futures were up 0.1% at $90.16.
Gold prices dipped 0.1% to $1,923.07 per ounce.
Reporting by Stella Qiu; Editing by Sonali Paul and Himani Sarkar
Our Standards: The Thomson Reuters Trust Principles.