On Monday, Asian stocks went up because some people thought that the U.S. Federal Reserve might slow down on raising interest rates this year. However, bourses in China fell after data showed that business activity had dropped more than expected.
Even though data showed that industrial production fell even more in September, Japan’s Nikkei 225 index was one of the best performers of the day. It went up 1.6%. But other reports showed that retail sales in September grew more than expected, which shows that the Japanese economy is holding up well.
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The ASX 200 index in Australia ended the day up 1.2%, and the KOSPI index in South Korea went up by almost 1%.
But Chinese stocks did worse than those of other countries. The blue-chip CSI 300 index fell 1.1%, and the Shanghai Composite index dropped 0.8%. Attitudes toward China got worse after PMI data showed that China’s manufacturing sector and overall business activity both went down in September.
The reading shows that COVID-related disruptions are likely to keep putting pressure on the world’s second-largest economy. Even more so now that Beijing has said again that it supports the strict zero-COVID policy.
The policy is at the heart of China’s economic problems this year, and foreign investors are likely to stay away from the country because of it. This year, Chinese stocks have also lost a lot of value because the policy has slowed economic growth to a crawl.
Some people think that the Federal Reserve will change its “hawkish” stance in 2023. This made broader Asian stocks go up. Most traders expect the central bank to raise rates by 75 basis points (bps) this week. However, the markets are now almost evenly split between a 75 bps hike and a 50 bps hike in December.
On this end, people will pay close attention to how the Fed meeting ends on Wednesday and what the bank says about the U.S. economy. The world’s largest economy avoided a recession in the third quarter, but inflation is still a problem.
This week, attention is also on other central banks. Rates are likely to go up this week at both the Reserve Bank of Australia and the Bank of England. This is because both banks want to stop inflation from going up.
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This year, tightening monetary policy has had a big effect on Asian stocks because it has made it harder to invest. When interest rates went up, investors turned to investments that were safer, like government debt.
