Asia Stocks Set to Decline After US Slide Deepens: Markets Wrap

2023-08-16 05:47

Asian stock markets are poised to open lower following declines across the board in the US as inflation

Asia Stocks Set to Decline After US Slide Deepens: Markets Wrap

Asian stock markets are poised to open lower following declines across the board in the US as inflation and growth concerns sapped risk sentiment.

Futures for equity benchmarks in Australia, Japan and Hong Kong all fell. The S&P 500, tech-heavy Nasdaq 100 and the blue-chip Dow Jones Industrial Average ended just off session lows.

A late-day selloff pushed the S&P 500 below its average price over the last 50 days for the first time since March, halting a streak of momentum that was by this measure the longest since September 2020.

Stocks fell after retail sales came in above forecasts, bolstering the case for the Federal Reserve to raise interest rates higher for longer. That message was reinforced by Minneapolis Fed President Neel Kashkari, who said that while inflation has been coming down, “it’s still too high.”

Read: Fed Officials Shift Rates Debate From ‘How High’ to ‘How Long’

Treasuries were mixed as investors pounced on elevated short-end rates. In the wake of the sales data, yields on two-year notes briefly spiked above 5%, a level it hasn’t closed above since early March, before reversing course. 10- and 30-year yields rose to the highest levels since October.

Rhys Williams, chief strategist at Spouting Rock Asset Management, is skeptical that inflation can be brought down, and remain at, the central bank’s 2% target rate this year.

“The most recent data — retail sales — shows the economy is still hanging in pretty well,” Williams said by phone. “Clearly the economy is better than anybody expected six months ago.”

Financials weighed on the broader benchmark after a warning from Fitch Ratings that the firm may downgrade larger lenders like JPMorgan Chase & Co. or Bank of America Corp.

In earnings, retailer Home Depot Inc. beat the average analyst estimate. More insight into the state of the consumer will come later this week when Target Corp. and Walmart Inc. are set to report.

Elsewhere, China’s economic woes remained in focus, with US-listed shares of Chinese companies falling for a third day. JPMorgan lowered its full-year economic growth forecast for China to 4.8% from 5% after a raft of disappointing data for July. Separately, some analysts speculated China’s surprise rate cut on Tuesday may need further measures to revive confidence. Meanwhile, Macquarie Group lowered estimates for the yuan.

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.

Still, Bank of America’s latest global survey of fund managers found investors the least pessimistic on stocks since February of last year, before the Fed began one of the most aggressive tightening cycles in decades.

They increasingly expect no recession at all within the next 18 months, and a “soft landing” in the next 12 months remains the base case, BofA strategists led by Michael Hartnett wrote in a note.

In Asia Wednesday, the Reserve Bank of New Zealand is likely to keep rates unchanged but send a hawkish signal to rein in elevated inflation expectations, according to Bloomberg Economics.

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

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