Asian shares slide on edginess over lack of Chinese stimulus

Sydney — Asian shares slipped on Monday as a mixed bag of Chinese economic data were not as bad as some feared, but still fanned market impatience with the lack of major fiscal stimulus from Beijing.

China reported economic growth of 0.8% in the second quarter, above the 0.5% forecasted, while the annual pace slowed more than expected to 6.3%.

Industrial output topped forecasts with a rise of 4.4%, while retail sales missed by a tick at 3.1%. That followed figures out at the weekend showing China’s new home prices were unchanged in June, the weakest result this year. “The data suggests that China’s post-Covid-19 boom is clearly over. The higher-frequency indicators are up from May’s numbers, but still paint a picture of a bleak and faltering recovery and at the same time youth unemployment is hitting record highs,” said CBA economist Carol Kong.

“Markets have already adjusted lower their expectations [for stimulus], and our base case is that there won’t be a substantial package.”

Chinese blue chips were down 1%, while the yuan was a fraction lower. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%, though that follows a 5.6% rally last week.

Japan’s Nikkei was closed for a holiday, though futures were trading 0.3% lower.

Euro Stoxx 50 futures and FTSE futures slipped 0.5%. S&P 500 futures and Nasdaq futures were off 0.1%, after hefty gains last week.

Tesla is the first of the big tech names to report this week, while a busy earnings schedule includes Bank of America, Morgan Stanley, Goldman Sachs and Netflix.

Data on US retail sales are expected to show a rise of 0.3% excluding cars, continuing the slower trend but solid enough to fit into the market’s favoured soft-landing theme.

“We continue to look for a modest contraction to take hold towards the end of the year, but the path to a non-recessionary disinflation is starting to look more plausible,” said Michael Feroli, an economist at JPMorgan.

“We expect Fed officials cheered the latest inflation developments, but declaring victory with sub-4% unemployment, and more than 4% core inflation, would be reckless.”

Markets thus still imply about a 96% chance of the Fed hiking to 5.25%-5.5% this month, but only about a 25% probability of yet a further rise by November.

They have also priced in at least 110 basis points of easing for next year, starting from March. Two-year bond yields were down 18 basis points last week.

That predicted policy easing is considerably more aggressive than what is priced in for the rest of the developed world, a major reason the US dollar has turned tail.

The dollar was softer at ¥138.45, but still up from a trough of ¥137.25, after a loss of 2.4% last week. The euro was firm at $1.1223, having also surged 2.4% last week to clear its former top for the year at $1.1096.

Sterling stood at $1.3089, having risen 1.9% last week, with investors anxiously awaiting UK inflation figures later this week in which another high result would add to the risk of further sizeable rate hikes.

The dollar index hovered at 99.989, after shedding 2.2% last week.

The drop in bond yields was underpinning non-yielding gold at $1,952, after boasting its best week since April.

Oil prices have also been supported by cuts in Opec supply, seeing crude gain for three consecutive weeks before running into profit taking. Prices were also pressured as Libya resumed production at the weekend.

Brent dropped 71c to $79.16 a barrel, while US crude fell 66c to $74.76.

Reuters