Nikkei Leads Losses in Asia Amid Weak China Inflation and US Jobs Data

Asian Pacific markets experienced a notable downturn on Monday, with the Hong Kong Hang Seng Index leading the losses in the region. The market’s negative sentiment was primarily fueled by a weaker-than-expected U.S. jobs report released on Friday, which raised concerns about the health of the global economy. China’s inflation rate also contributed to the market’s woes, growing only 0.6% year on year, which was lower than the 0.7% forecasted by economists. On a month-on-month basis, the Consumer Price Index (CPI) rose by 0.4%, again falling short of expectations. This underperformance in inflation metrics has amplified fears of economic slowdown in the world’s second-largest economy.

The Hang Seng Index suffered a significant loss of 2.08%, while mainland China’s CSI 300 fell by 1.41%. These declines were exacerbated by Chinese electrical appliance manufacturer Midea Group’s announcement of a massive listing of 492.1 million shares in Hong Kong. The offering is priced between HK$52 and HK$54.80 per share, and at the top end of the pricing range, it would be worth HK$26.97 billion. This would make it the city’s largest listing in over three years, yet it failed to buoy investor confidence amidst broader economic concerns.

Japan’s second-quarter Gross Domestic Product (GDP) came in at 2.9% on an annualized basis, which was lower than the 3.2% expected by economists. This softer GDP growth figure is likely to constrain the Bank of Japan’s options to raise interest rates, adding another layer of complexity to the economic landscape. The Nikkei 225 ended the day 0.48% lower, and the Topix fell by 0.68%. The Japanese yen weakened by 0.4% against the U.S. dollar, coming off a nine-month low. Yen traders are closely watching equities as risk-off sentiment grows, and the unwind of the yen carry trade is expected to continue.

FX strategy expert Kathy Lien has predicted periods of aggressive selling in equities this month, further dampening market sentiment. Australia’s S&P/ASX 200 also closed 0.32% lower, reflecting the broader regional downturn. U.S. markets saw losses on Friday due to the disappointing U.S. jobs report, adding to the global economic uncertainty. Bloomberg, a key provider of business and financial information, noted that Japanese stocks initially suffered losses as the yen strengthened, although concerns about exporters eased as the yen resumed sliding. However, worries about the U.S. economy continued to put pressure on the market.

The Nikkei 225 stock average was down 0.5% at market close in Tokyo, having dropped as much as 3% earlier in the session. The broader Topix index also fell, dropping 0.7%, after having fallen 2.9% earlier in the day. The yen weakened by 0.5% against the dollar due to Japan’s economy expanding at a slightly slower pace than expected. The initial estimate from the government had been higher, causing the yen to lose some of its gains from last Friday. Investors were somewhat relieved as concerns about the health of the Japanese economy lessened, but the currency movements had a direct impact on the stock market.

Japanese equities fell further, with the Nikkei 225 stock average hitting a three-week low. This decline was triggered by soft U.S. labor data, which raised concerns about a slowdown in the U.S. economy. Chip-related shares led the decline, while financials were also impacted by lower bond yields. According to Kentaro Hayashi, a senior strategist at Daiwa Securities, the market is cautious due to recent soft economic data in the U.S. The market is expected to remain nervous until the release of U.S. payrolls data on Friday. Exporters, such as carmakers, also saw a dip in their stock prices as the yen traded near a seven-month high.

The yen’s strength is attributed to speculation that the Federal Reserve will cut interest rates later this month. Real wages in Japan rose for a second consecutive month, indicating potential for another rate hike by the Bank of Japan later this year. This wage data provided support to domestic demand-oriented stocks, including train operators and food companies. As a result, the number of advancing stocks was almost equal to decliners. Nomura Research Institute Ltd., a Japanese IT services and consulting company, climbed to a record high after news of its addition to the Nikkei 225. Mitsubishi Logistics Corp. also saw a surge of 5.4% as it remained in the Nikkei despite predictions by some analysts that it would be dropped.

Meanwhile, Nippon Steel Corp. shares fell by 0.4% following reports that U.S. President Joe Biden may block its $14.1 billion takeover of United States Steel Corp. The decline in Nippon Steel’s stock price reflects market concerns about the potential impact of this development. The overall market sentiment in Japan is cautious due to the combination of soft U.S. economic data, a strong yen, and potential changes in the M&A landscape. Nomura Research Institute’s addition to the Nikkei is seen as a positive move by the company and its shareholders. Mitsubishi Logistics Corp.’s retention in the index shows strong confidence in the company’s performance.

However, there are concerns about the potential impact of U.S. politics on Japanese companies looking to expand through M&A. Investors will be closely monitoring U.S. payrolls data on Friday to assess the impact on the market. Overall, Japanese equities continue to face uncertainties, but there are positive signs such as the rise in real wages and the performance of domestic demand-oriented stocks. Investors are waiting for U.S. jobs data to be released later in the day, which could impact the Federal Reserve’s decision on interest rates. Japan’s Nikkei share average fell for a fourth straight day, with a stronger yen also contributing to the decline.

The broader Topix also slipped, with electronic appliance maker Hitachi and chip-making equipment maker Tokyo Electron dragging the index down. China’s stock market hit a seven-month low, with technology and property shares falling while brokerages saw gains. The former central bank governor of China stated that the country should focus on fighting deflationary pressure. The central bank hinted at more easing, causing investors to interpret this as a sign of economic weakness. The Shanghai Composite index and Shenzhen Composite index both fell, while the blue-chip CSI300 index ended lower. Super Typhoon Yagi caused trading in the Hong Kong market to be suspended.

Consumer staples, real estate, and healthcare sectors on the Chinese market all saw decreases. In other regions, markets in Seoul, Mumbai, and Wellington fell, while markets in Sydney, Singapore, Taipei, Manila, Jakarta, and Bangkok rose. MSCI’s broadest index of Asia-Pacific shares outside Japan edged higher but was on track for a significant drop for the week. Europe was set to open lower, with analysts predicting a decrease in both Euro Stoxx 50 futures and FTSE futures. Nasdaq futures and S&P futures also saw declines. Analysts are expecting an increase of 160,000 in new U.S. jobs and a dip in the unemployment rate.

However, recent softer partial data suggests the risk is to the downside, which could lead to speculation of a larger rate cut in September. The Japanese yen rose against the dollar, and Treasury yields continued to decline. Oil prices are facing their worst week since October 2023 as concerns over demand outweighed supply issues. Brent crude futures have seen a significant drop this week. Gold prices have also seen an increase, nearing their record high. The interplay between these various factors underscores the complexity and interconnectedness of global financial markets. Investors and analysts alike are navigating a challenging landscape, marked by economic uncertainties and geopolitical developments.

As we move forward, the release of U.S. payrolls data will be a critical event that could shape market sentiment and influence monetary policy decisions. The performance of Asian markets, particularly in Japan and China, will continue to be closely watched, as these economies play pivotal roles in the global economic framework. The ongoing developments in the U.S. labor market, coupled with inflation trends in China, will provide valuable insights into the broader economic trajectory. In this context, market participants must remain vigilant and adaptive, leveraging comprehensive data and analysis to make informed decisions. The road ahead is fraught with challenges, but also presents opportunities for those who can navigate the complexities of the current economic environment.