SYDNEY (Reuters) – Asian shares slid on Monday as China’s property woes amplified the case for serious stimulus even as Beijing seems deaf to the calls, while rising Treasury yields lifted the dollar to a 2023 peak on the embattled yen.
Geopolitics was an added worry after a Russian warship on Sunday fired warning shots at a cargo ship in the southwestern Black Sea, heralding a new stage of the war that could impact on oil and food prices.
MSCI’s broadest index of Asia-Pacific shares outside Japan lost another 1.7%, after shedding 2% last week. was off 1.3%, even as exporters drew support from the weak yen.
Chinese blue chips fell 1.2%, on top of a 3.4% decline last week, amid a string of disappointing economic news culminating in a dire report on new bank loans in July.
Figures on retail sales and industrial output are due Tuesday and analysts assume they will underwhelm, keeping downward pressure on the yuan.
Adding to concerns about the deteriorating health of the country’s debt-laden property developers was news two Chinese listed companies had not received payment on maturing investment products from Zhongrong International Trust Co.
China’s Country Garden, the country’s top private property developer, is also set to suspend trading of its 11 onshore bonds from Monday.
EUROSTOXX 50 futures slipped 0.4% and futures 0.2%. The sour mood saw and Nasdaq futures shed early gains to each ease 0.2%.
That followed losses on Friday when surprisingly high readings on U.S. producer prices tested market optimism that inflation would cool enough to avoid further rate hikes.
CONSUMERS KEEP CONSUMING
Figures on U.S. retail sales this week are forecast to show a 0.4% pick up in spending, with risks on the high side thanks in part to Amazon (NASDAQ:)’s Prime Day.
Analysts at BofA say data on credit and debit card spending suggests sales could rise 0.7% with activity around the July 4 holiday stronger than last year.
Such an outcome would challenge the market’s benign outlook for rates, with futures implying a 70% chance the Federal Reserve is done hiking. The market also has more than 120 basis points of cuts priced in for next year starting from around March.
Minutes of the Fed’s last meeting are due on Wednesday and could show members wanted to keep their options open on further hikes.
Analysts at Goldman Sachs (NYSE:) argue the market has gone too far in pricing in aggressive easing.
“The motivation for cutting outside of a recession would be to normalise the funds rate from a restrictive level back toward neutral once inflation is closer to the target,” they wrote in a note.
“Normalisation is not a particularly urgent motivation for cutting, and for that reason we also see a significant risk that the Fed will instead hold steady.”
They expect cuts of only 25 basis points a quarter starting from the second quarter of next year, with the funds rate eventually stabilising at 3-3.25%.
The resilience of the economy combined with a truly massive government borrowing requirement kept 10-year Treasury yields up at 4.18%, after a rise of 12 basis points last week.
That rise juiced the dollar against the low-yielding yen, hoisting it as far as 145.22 and a peak not seen since November last year. Concerns about possible intervention then saw it edge back to 144.92.
“The near 5% lift in since mid-July may prompt Japanese officials to warn against the rapid yen weakness,” said Kristina Clifton, a currency strategist at CBA.
“Yet markets appear convinced by the BOJ’s consistently dovish message that it will not tighten policy over the foreseeable future.”
The euro has already reached its highest since late 2008 and was holding firm at 158.51 yen. The single currency was more range-bound on the dollar at $1.0933. [USD/]
The dollar was also climbing on its Australian and New Zealand counterparts, along with a range of emerging Asian currencies, all being dumped as proxies for China risk.
The ascent of the dollar and yields was weighing on gold at $1,912 an ounce, having fallen for three weeks in a row. [GOL/]
Oil prices have been going the other direction as tight supply meets forecasts of strong demand to deliver seven straight weeks of gains. [O/R]
Monday saw some profit-taking nudge down 78 cents to $86.03 a barrel, while fell 76 cents to $82.43 per barrel.