(Bloomberg) — Asian stocks fell Monday after Japanese shares tumbled as growing speculation the nation’s central bank will raise interest rates boosted the yen.
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The Topix index of Japanese equities faced its biggest one-day drop since October, weighed down by the tech sector. Chip stocks within the benchmark slumped in a move that echoed pressure on AI-related stocks seen on Friday in the US, when Nvidia Corp. slipped 5.6%.
Shares in Australia and South Korea also declined, sending a gauge of regional stocks down after three days of gains. US futures declined following falls on Wall Street at the end of last week, where both the S&P 500 and the Nasdaq 100 slipped.
In Japan, economic growth expanded in the fourth quarter, supporting expectations that the Bank of Japan will raise interest rates for the first time since 2007 as soon as this month. Declines for Japanese shares partly reflected the stronger yen, which typically acts as a headwind for the country’s equities.
The yen strengthened against the greenback, extending last week’s 2% rally against the US currency — its best weekly gain since July. Japan’s 10-year real bond yields headed for a three-week high.
“Perhaps, Japan is finally coming out of this deflationary vortex and that could have profound implications on Japanese assets,” said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi Asset Management, explaining that this will be supportive for the yen through repatriation flows, mainly going into stocks.
Chinese equities ran against the gloom to trade higher. The advance was helped along by the first rise in consumer prices since August. The 0.7% gain in February CPI exceeded consensus estimates and is welcome news for investors worried about deflation in the world’s second largest economy.
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The gains come even despite a lackluster set of announcements from the National People’s Congress that many China-watchers see as a lost opportunity to support confidence.
“We haven’t see anything done about the social safety net, so households don’t feel they have to save as much as they are,” Charlene Chu, China macro financial analyst for Autonomous Research, said on Bloomberg Television. Such measures would “help address some of these consumption issues,” that are weighing on confidence, she said.
Soft Landing
Tuesday’s US consumer price index figures will dominate the economic data reports this week. The core prices gauge is seen rising 0.3% in February from a month earlier, and 3.7% on a year-over-year basis — which would be the smallest annual rise since April 2021.
Further moderation in US prices would support the disinflation narrative that broadly remains in tact, despite a pullback in the number of Federal Reserve rate cuts expected this year. Swaps pricing shows three cuts are anticipated in 2024, down from six at the start of the year.
Last week’s US jobs data did little to change that outlook. The jobless rate touched a two-year high, even as the number of new jobs added exceeded estimates. The mixed signal points to a slowly cooling labor market that, for now, supports expectations for a soft landing in the US economy.
The jobs report “didn’t necessarily amount to an ‘all-clear’ signal for the Fed, but there also didn’t appear to be anything in it that would derail its plan to cut rates,” said Chris Larkin at E*Trade from Morgan Stanley.
Yields in Australia were largely flat Monday, reflecting the steady trading in Treasuries in Asia. An index of the dollar was weaker after falling 1% last week — the worst weekly showing since December.
In commodities, oil held a loss Monday ahead of reports from OPEC and the IEA this week that may provide clues on the demand outlook.
Key Events This Week:
CPI reports for Argentina, Brazil, Germany, India, US, Tuesday
UK jobless claims, unemployment, Tuesday
Japan PPI, Tuesday
India industrial production, Tuesday
Mexico international reserves, industrial production, Tuesday
Philippines trade, Tuesday
Turkey industrial production, current account, Tuesday
EU finance ministers meet in Brussels, Tuesday
ECB Governing Council Member Robert Holzmann speaks, Tuesday
Eurozone, UK industrial production, Wednesday
India trade, Wednesday
South Korea jobless rate, Wednesday
ECB Governing Council member Yannis Stournaras speaks, Wednesday
Swedish Riksbank First Deputy Governor and Deputy Governor speak, Wednesday
Saudi Arabia, Spain CPI, Thursday
US PPI, retail sales, initial jobless claims, business inventories, Thursday
Australia Treasurer Jim Chalmers delivers pre-budget address, Thursday
Canada housing starts, Friday
China property prices, Friday
France, Italy, Poland CPI, Friday
Indonesia trade, Friday
Japan tertiary index, Friday
New Zealand PMI, Friday
Philippines overseas remittances, Friday
Sri Lanka GDP
US industrial production, University of Michigan consumer sentiment, Empire Manufacturing, Friday
Japan’s largest union federation announces results of annual wage negotiations, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 12:02 p.m. Tokyo time
Nikkei 225 futures (OSE) fell 2.5%
Japan’s Topix fell 2.3%
Australia’s S&P/ASX 200 fell 1.6%
Hong Kong’s Hang Seng rose 1%
The Shanghai Composite fell 0.2%
Euro Stoxx 50 futures fell 0.5%
Nasdaq 100 futures fell 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was unchanged at $1.0939
The Japanese yen rose 0.1% to 147 per dollar
The offshore yuan was little changed at 7.1996 per dollar
The Australian dollar fell 0.2% to $0.6612
Cryptocurrencies
Bitcoin fell 1.5% to $68,374.82
Ether fell 1.8% to $3,838.62
Bonds
The yield on 10-year Treasuries was little changed at 4.07%
Japan’s 10-year yield advanced three basis points to 0.760%
Australia’s 10-year yield declined two basis points to 3.95%
Commodities
This story was produced with the assistance of Bloomberg Automation.
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