Asian stocks fell on Tuesday as weak Chinese economic data released the previous day continued to weigh on sentiment, while investors were waiting to see if U.S. retail sales data would shine a light on the path for U.S. interest rates.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slipped 0.63% in the morning session.
Investors are waiting for stronger signs of inflation cooling, with the readings on U.S. retail sales and U.S. industrial production to be released later on Tuesday. Economists reckon retail sales in June will show a 0.5% rise from May.
“People think of the tug of war between growth and inflation still. This week we have a number of US economic data that will give a clear indication on whether further rate hikes are needed,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank.
The U.S. Federal Reserve, European Central Bank and Bank of Japan are holding policy reviews next week.
After the cancellation of trading on Monday due to a typhoon, Hong Kong stocks (.HIS) were catching up with the fall in Chinese stocks triggered by data showing the post-pandemic bounce in China’s economy was over, with quarter-on-quarter growth of 0.8% in the second quarter.
Ng said Asian investors were struggling to find some positivity after the “very poor Chinese economic data”.
The benchmark Hang Seng index dropped 1.74%% while the technology sector (.HSTECH) fell 1.89%. China A shares (.CSI300) were down 0.4% during early session on Tuesday. Japan’s Nikkei (.N225), however, eked out a gain of 0.18%.
A possible divergence of U.S. Federal Reserve and European Central Bank on rate hikes has recently caused dollar to weaken.
Money markets have largely priced in a 25-basis-point rate hike from the Fed at its policy meeting later this month, though there are expectations that rates will come down as early as December.
Conversely, investors expect the European Central Bank and the Bank of England to extend their rate-hike cycle.
The Bank of Japan (BOJ) holds its monetary policy meeting next week, with investors on the lookout for whether it will start phasing out its ultra-dovish policy stance.
The U.S. dollar index dipped slightly to 99.85 in early Asia trade, having struck its lowest since April 2022 on Friday. The euro firmed 0.11% to $1.1246.
Benchmark 10-year notes were flat, with a yield of 3.7989%.
U.S. crude rose 0.22% to $74.31 per barrel and Brent was at $78.64, up 0.18%.
Spot gold added 0.1% to $1,957.50 an ounce. U.S. gold futures were up by 0.26% at $1,960.19 an ounce.