Sydney (Reuters) – Asian stocks were all over the place on Monday, after China’s central bank cut key lending rates and a lot of economic data didn’t meet expectations. This shows that the world’s second-largest economy needs more stimulus to keep it going.
Both retail sales and industrial output rose less than expected in July, which added to the bad news about new bank loans.
The cut in rates helped soften the blow a little and kept Chinese blue chips steady while the yuan and bond yields went down.
Alvin Tan, a strategist at RBC, said that these are more signs that the growth boost after the Shanghai lockdown is quickly fading. “Monetary policy isn’t working as well as it used to, except maybe for the exchange rate. Exports are the economy’s only bright spot. “
MSCI’s broadest index of Asia-Pacific stocks outside of Japan was flat this week after jumping 0.9% the week before.
The Nikkei rose 1.1% after data showed that Japan’s economy grew by 2.2% on an annualised basis in the second quarter, which was just a little bit less than expected.
Investors are still waiting to see if Wall Street can keep going up. This week, hawkish comments from the Federal Reserve could test the idea that U.S. inflation has reached its peak.
And Tapas Strickland, who is in charge of economics at NAB, said, “The FOMC Minutes on Wednesday should back up the hawkish tone of recent Fed speakers that rates and inflation are nowhere near done.”
Markets continue to believe that the Fed will raise interest rates by 75 basis points in September, with rates rising to between 3.50 and 3.75 percent by the end of the year.
Hopes for a soft landing for the economy will also be tested by U.S. retail sales data for July, which are expected to show a sharp drop in spending.
There is also a chance that big retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT) could warn about a drop in sales when they report their earnings.
There are still a lot of geopolitical risks with a group of U.S. lawmakers in Taiwan for two days.
Futures on the EUROSTOXX 50 went up 0.4%, and futures on the FTSE went up 0.5%. After going up last week, S&P 500 futures and Nasdaq futures were both down about 0.2%.
However, the S&P 500 is nearly 17% higher than its low point in mid-June and only 11% lower than its all-time high.This is because many people think that the worst of inflation, at least in the United States, is over.
ON TOP OF INFLATION
Analysts at BofA said, “The leading indicators we see support moderation, with supply pressures going down, demand going down, money supply going down, prices going down, and expectations going down.”
“Key parts of the overall rate of inflation, like food and energy, are also at a turning point. Wall Street and Main Street now both think that inflation will slow down. “
With the yield curve still deeply inverted, the bond market still seems to doubt that the Fed can make a soft landing. At 3.26 percent, the yields on two-year notes are 42 basis points higher than those on 10-year notes.
These yields have kept the U.S. dollar strong, but it fell 0.8% against a group of currencies last week as people became more comfortable with taking risks.
The euro was still at $1.0249, even though it had gone up 0.8% in the past week. However, it didn’t want to go past resistance around $1.0368. After losing 1% against the yen last week, the dollar held steady at 133.23. [USD/]
Jonas Goltermann, a senior economist at Capital Economics, said, “We still think the dollar rally will start up again soon.”
“The Fed won’t change course until it hears a lot more good news about inflation. The minutes from the last meeting of the Federal Open Market Committee (FOMC) and the Jackson Hole conference may show that the Fed is not “pivoting.”“
Gold, which gained 1% last week and was trading around $1,794 an ounce, got a bit of a break when the dollar went down. [GOL/]
Oil prices went down because China’s bad data added to worries about the demand for fuel around the world.
The head of the world’s biggest exporter, Saudi Aramco (TADAWUL:2222), said that it is ready to increase output while production at several offshore U.S. Gulf of Mexico platforms is starting back up after a short break last week. [O/R]
Brent fell 99 cents to reach $97.16 per barrel, and U.S. crude fell 89 cents to reach $91.20 per barrel.
