SINGAPORE: Asian stocks lost ground on Thursday, still hurting from China’s slip into deflation, with investors particularly cautious ahead of a crucial US inflation report that will likely influence the Federal Reserve’s monetary policy path.
The announcement of a US ban on investments in sensitive technologies in the world’s second-largest economy also weighed on sentiment.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.33% and it looked set to log a second straight week of losses.
China’s blue-chip CSI 300 Index and the Shanghai Composite Index opened 0.1% lower, while Hong Kong’s Hang Seng Index retreated 0.6%.
Japan’s Nikkei was, however, up 0.13%.
Chinese data on Wednesday showing deflation at the consumer-price level and further declines for factory-gate prices in July have only exacerbated concerns about the sputtering nature of the country’s post-pandemic recovery.
China is the first G20 economy to report a year-on-year decline in consumer prices since Japan’s last negative headline CPI reading in August 2021.
It highlights “the need for more fiscal support, if Beijing wants to avoid the prospect of a deflationary trap,” said Rodrigo Catril, senior currency strategist at National Australia Bank.
Asia shares on guard for US, China inflation risks
President Joe Biden on Wednesday signed an executive order that will prohibit some new US investment in China in sensitive technologies like computer chips and require government notification in other tech sectors.
“This signifies unprecedented federal oversight to scrutinize and sometimes hinder such investments in China’s tech sector,” strategists at Saxo Markets said.
Investors have also been unwilling to place major bets this week ahead of a US inflation report due later on Thursday. US CPI is forecast to show headline inflation picking up slightly in July to an annual 3.3%, while the core rate, which excludes the volatile food and energy segments, is forecast to rise by 0.2% in July, for an annual gain of 4.8%.
Markets are pricing in a more than 50% chance that the Federal Reserve is done with interest rate hikes this year, the CME FedWatch tool shows, as inflation moderates and the prospect of a soft landing increases.
The yield on 10-year Treasury notes was up 1.1 basis points at 4.019% in Asian hours, while the yield on the 30-year Treasury bond was at 4.186%.
Bond strategists polled by Reuters expect US Treasury yields to fall in the coming months, with the median forecast for the 10-year Treasury note yield at 3.60% in six months.
In the currency market, the dollar index, which measures US currency against six peers, was little changed at 102.52.
The euro edged down 0.04% to $1.0969.
The Japanese yen weakened 0.04% to 143.80 per dollar, while sterling was last at $1.2714, down 0.03%.
Oil prices eased in Asian trade after touching seven-month peaks in the previous session, as concerns about the Chinese economy outweighed the positive impact of steep drawdowns in US fuel stockpiles and Saudi and Russian output cuts.
US crude fell 0.07% to $84.34 per barrel and Brent was at $87.48, down 0.08% on the day.
Spot gold added 0.2% to $1,917.74 an ounce.
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