Rate outlook, China data fail to drag Asian shares

HONG KONG: Most Asian stocks rallied on Monday and oil fell as investors brushed off both weak data from China and comments indicating that the Federal Reserve (Fed) is wedded to its anti-inflation rate-hike campaign.

Strong earnings from Wall Street titans Amazon and Apple helped United States markets end last week with healthy gains and eased concerns about the impact of surging inflation and rising borrowing costs on consumers.

That came after investors took Fed Chairman Jerome Powell’s comments after a policy meeting last Wednesday as indicating that the US central bank could start slowing down its monetary tightening, providing a much-needed boost to stocks.

But analysts warned that inflation would take time to fall from its four-decade highs and that there were undoubtedly more rate hikes to come.

Officials backed that up over the weekend, with Minneapolis Fed chief Neel Kashkari telling The New York Times that he was “surprised by markets’ interpretation” of the latest Fed meeting statement.

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“I think we’re going to continue to do what we need to do until we are convinced that inflation is well on its way back down to 2 percent,” he said. “We are a long way away from that.”

Atlanta Fed President Raphael Bostic said he did not think the economy was in a recession owing to ongoing jobs growth, but that inflation remained too high, and he was “convinced” more must be done.

Still, Treasuries continued to fall, with the 10-year yield at 2.67 percent, well down from June’s peak near 3.50 percent, suggesting that expectations for future rates are easing.

Inflation pressure could get some relief following news that the first shipment of Ukrainian grain left the Black Sea port of Odesa on Monday under a deal aimed at relieving a global food crisis following Russia’s invasion of Ukraine.

Asian markets opened the day cautiously as investors struggled to extend Wall Street’s lead, but they picked up in the afternoon.

Hong Kong and Shanghai recovered after sinking in reaction to another disappointing reading on the Chinese economy.

Weak demand

The closely watched purchasing managers’ index for China’s manufacturing sector shrank in July on the back of weak demand and the strict zero-Covid measures imposed in parts of the country.

While sweeping curbs have eased in major hubs, such as Shanghai and Beijing, sporadic lockdowns in other cities and towns have kept businesses and consumers worried, with few signs of the policy easing.

Oanda’s Craig Erlam said there was a positive to be taken from “the improvement in supply chain conditions, which should aid the inflation fight around the world.”

“Of course, it is more than just a supply chain problem at this point, but every little helps,” he added.

Hong Kong tech was dragged, however, by the news that US authorities had put market heavyweight Alibaba on a list of firms threatened with a New York delisting if they did not comply with disclosure rules.

Tokyo, Sydney, Seoul, Mumbai, Singapore, Bangkok, Jakarta and Wellington edged up, though Taipei and Manila closed slightly lower.

London opened slightly higher, but Paris and Frankfurt dipped.

The latest Chinese data revived demand concerns on oil markets, sending both main contracts down on Monday after last week’s bounce.

Investors are now looking toward a meeting of the Organization of the Petroleum Exporting Countries and other major producers (OPEC+) this week, where they will discuss their deal to raise output slowly.

US President Joe Biden had called on Saudi Arabia to open the taps further when he visited the country last month as he tried to address a crucial driver of inflation around the world.

But the kingdom does not appear to have made any such move so far, with oil having lost almost all the gains made since Russia’s invasion.

“The US has expressed optimism about the potential for an OPEC+ supply response,” SPI Asset Management’s Stephen Innes said. “However, it seems highly unlikely there would be much appetite for a significant increase in production.”