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Asia stocks drop on China concerns, hawkish Fed: markets wrap

Asia stocks drop on China concerns, hawkish Fed: markets wrap
An electronic ticker displays stock figures in Pudong's Lujiazui Financial District in Shanghai, China, on Wednesday, June 21, 2023. (Photo: Raul Ariano/Bloomberg)

Asian stocks dropped on concern over China’s stuttering economy and signs the Federal Reserve will keep interest rates higher for longer to tame inflation.

Benchmark indexes fell across the region with some of the biggest declines in Hong Kong and Australia. The MSCI China Index is on course to erase all the gains it made since last month’s Politburo meeting. The losses followed a drop in US equities on Tuesday when robust economic data added to concern the Fed will keep rates elevated for longer.

China’s economic woes remained in focus with a report showing new-home prices fell for a second month in July, adding to fears over the ailing property sector. JPMorgan Chase & Co. cut its full-year growth forecast for the country to 4.8% from 5% after a raft of disappointing data for July. Macquarie Group lowered estimates for the yuan.

Investors are becoming more negative about China “despite the fact that it’s extremely cheap”, Kieran Calder, head of equity research for Asia at Union Bancaire Privée, said on Bloomberg Television. While the market obviously is waiting for a stimulus bazooka, signals from the government show that they are only taking a piecemeal approach, he said.

The offshore yuan edged higher after the People’s Bank of China sought to boost market sentiment with a stronger-than-expected currency fixing and its largest injection of short-term cash to the financial system since February.

In the earnings pipeline Wednesday is Tencent Holdings Ltd. The company is expected to record its fastest pace of revenue growth in more than a year, fueling optimism the internet sector is emerging from a historic trough despite Chinese economic turmoil.

Fed rates

US stocks had dropped on Tuesday after retail sales beat forecasts, bolstering the case for further Fed tightening. That message was reinforced by Minneapolis Fed President Neel Kashkari, who said that while inflation has been coming down, “it’s still too high”. 

Major currencies were mixed. The kiwi erased an intraday decline after the Reserve Bank of New Zealand left its key rate unchanged as economists predicted, but said forecasts now show a small chance of another rate hike.

Treasuries edged higher in Asia. Two-year yields had briefly spiked above 5% Tuesday before reversing course, while yields on the 10- and 30-year debt rose to the highest levels since October. 

While investors navigate a hawkish Fed and a slowdown in China, a devaluation in Argentina and Russia’s emergency rate hike on Tuesday to stem the ruble’s slide added to the risk-off sentiment.

On the economic front, the UK reports inflation and the euro area will publish growth figures. Later, minutes from the Fed’s July policy meeting are due. 

Elsewhere, oil slipped for a third day, while gold edged higher. DM

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