Asian Stocks Decline as Inflation Doubts Linger: Markets Wrap

(Bloomberg) — Stocks in Asia dropped after the rally in US bonds and stocks hit a wall Friday amid concern the Federal Reserve can’t claim victory over inflation yet.

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Shares declined in mainland China, South Korea and Australia. Japanese markets are shut for a holiday while trading in Hong Kong is likely canceled due to a storm.

China’s central bank kept its medium-term lending facility unchanged Monday despite mounting market calls for more stimulus. Traders will also be parsing gross-domestic-product figures that will be muddied by the base effects of Shanghai’s lockdown last year. Bloomberg Economics sees GDP growth slowing after “cutting through the statistical noise.” The pace of retail sales and industrial production are also projected to ease.

The offshore yuan was little changed after the People’s Bank of China earlier extended support for the currency.

Contracts for the S&P 500 and Nasdaq 100 were marginally lower as trading got underway in Asia. The underlying indexes posted mild losses Friday as traders cited consolidation after an advance that still drove the S&P 500 to its best week since mid-June.

The dollar was little changed Monday after a gauge of greenback strength snapped a five-day losing streak Friday. The currency’s weekly slide has the index back near levels last seen in April 2022 as some strategists and investors suggest its long bull run is over.

The yen edged higher after Bank of Japan Governor Kazuo Ueda said uncertainty remains high over the US and global economies. He also said there wasn’t much change in Japan’s bond-market functionality from the previous monetary policy meeting in June.

Yields on Australia’s policy-sensitive three-year notes steadied while those on 10-year bonds edged up one basis point.

There’s no trading of cash Treasuries in Asia Monday due to the holiday in Japan. Yield on the two-year Treasury rose by 14 basis points Friday after a report showed US consumer sentiment climbed to an almost two-year high. That was a contrast to the slide in yields over the preceding few days.

“We think it is premature to declare victory on inflation and expect volatility to remain elevated over the near term,” JPMorgan Chase & Co. strategists led by Phoebe White wrote in a note, even after other data last week “revived the market narrative surrounding immaculate disinflation and a soft landing,” they said.

Cautious Tone

Fed Governor Christopher Waller said last week he expected two more rate increases this year to bring inflation down to the 2% goal, though more good data on prices could obviate the need for the second hike.

Swaps pricing show expectations the Fed is virtually certain to raise its benchmark rate by another 25 basis points when it meets this month, with a roughly one-third chance it will make one more such move before stopping its cycle.

Investors also sifted through results from JPMorgan, Wells Fargo & Co. and Citigroup Inc., which easily beat lowered analyst estimates. UnitedHealth Group Inc. surged as profits allayed fears of runaway medical costs.

Elsewhere, oil extended declines as a major Libyan field resumed output after protesters that shut the facility ended their demonstration. Gold was little changed.

Key events this week:

China retail sales, industrial production, investment and GDP, Monday
G-20 finance ministers and central bankers are meeting in India, Monday
European Central Bank President Christine Lagarde speaks, Monday
US empire manufacturing, Monday
US retail sales, industrial production, business inventories, cross-border investment, Tuesday
Eurozone, UK CPI, Wednesday
US housing starts, Wednesday
China loan prime rates, Thursday
US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
Japan CPI, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 10:31 a.m. Tokyo time. The S&P 500 fell 0.1% Friday
Nasdaq 100 futures were little changed. The Nasdaq 100 was little changed Friday
South Korea’s Kospi Index fell 0.2%
China’s Shanghai Composite Index fell 0.9%
Australia’s S&P/ASX 200 Index was little changed

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.1224
The Japanese yen rose 0.2% to 138.51 per dollar
The offshore yuan was little changed at 7.1565 per dollar
The Australian dollar fell 0.1% to $0.6831

Cryptocurrencies

Bitcoin was little changed at $30,285
Ether fell 0.3% to $1,923.79

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rita Nazareth and Joanna Ossinger.