Asian markets dip as China’s consumer prices drop 0.3% in July

August 09, 2023 (MLN): 

• Asian markets dip as China’s consumer prices drop 0.3% in July, adding to economic woes

The mood on trading floors was already glum after another sell-off on Wall Street fuelled by fresh concerns over the banking sector and talk of another possible Federal Reserve rate hike.

The 0.3 percent drop in China's July consumer prices was the first since the start of 2021 and comes as slowing domestic spending weighs on the country's post-Covid recovery.

Investors were already in a dour mood a day after China announced its biggest drop in exports since the beginning of the pandemic more than three years ago, while imports also tanked owing to slimming demand at home.

An extended period of disappointing indicators out of Beijing this year has ramped up pressure on authorities to provide much-needed support to the economy.

However, while leaders have made a number of pledges in recent weeks to introduce a stimulus, particularly for the property sector, there have been very few concrete moves save for some small interest rate cuts by the People's Bank of China.

"China is in deflation, for sure, the question is for how long." Robin Xing of Morgan Stanley said on Bloomberg Television. "It's up to the policymakers how they react."

Even so, observers warn that the headline-grabbing bazooka officials have unleashed in the past is unlikely owing to the country's huge debt pile and concerns about an already weak yuan.

"These figures will amplify concerns regarding China's potential for economic growth and the efficiency of conventional measures to boost the economy," said SPI Asset Management's Stephen Innes.

"Frankly, this is not coming as much of a surprise given (Tuesday's) trade data signals, nonetheless it brings Mainland China one step closer to a Japanese-styled low inflation trap," he added, referring to Japan's decades-long battle against weak price gains and slow economic growth.

In early trade, Hong Kong and Shanghai extended the week's losses, while Tokyo, Sydney, Wellington, and Taipei were also in the red. However, Seoul, Manila, and Jakarta edged up.

Traders are now keenly awaiting the release of US inflation data Thursday, hoping for an idea about the Fed's plans for rates.

After announcing a hike last month, officials said they would be more data-dependent on future decisions, fanning hopes it would stop hiking.

But a mixed jobs report last week and hawkish comments from some policymakers have caused a little uncertainty among investors, dealing a blow to a market rally.

A decision by Moody's to downgrade 10 regional US banks and put another six on the watch for a possible cut revived concerns about the sector after March's upheaval, dragging on sentiment.

That came after Italy announced a windfall tax on the country's lenders, battering their stock prices in a sell-off that spread to banks in France and Germany.

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