Asia-Pacific Stocks Fall as Chinese Data and Stimulus Concerns Impact Investor Sentiment

Asian stocks suffered losses on Tuesday due to weak Chinese economic data and a lack of stimulus, which dampened investor sentiment. Additionally, market participants were eagerly awaiting U.S. retail sales figures for insights into the Federal Reserve’s future policy decisions. The focus now shifts to the upcoming quarterly earnings reports, with major banks like Bank of America, Morgan Stanley, and Goldman Sachs set to release their results. Tesla’s earnings are also anticipated to give the market a closer look at the performance of large U.S. corporations following recent stock market gains.

On Tuesday, MSCI’s broadest index of Asia-Pacific shares outside Japan fell by 0.56%. Investors are eager to see signs that inflation is cooling, and the U.S. retail sales and industrial production data set to be released later in the day will provide valuable insights. Economists expect retail sales for June to show a rise of 0.5% from the previous month, a strong enough increase to maintain the scenario of a soft landing without reigniting concerns about inflation.

Gary Ng, a senior economist at Natixis Corporate and Investment Bank, explained that this week’s U.S. economic data will offer a clear indication of whether further interest rate hikes are necessary. Next week, the Federal Reserve, European Central Bank, and Bank of Japan will hold their policy reviews, attracting much attention from investors. The previous day, typhoon-related trading suspension in Hong Kong contributed to the market catching up with the decline in Chinese markets triggered by disappointing economic data.

Despite the struggles to find positive news after the “very poor Chinese economic data,” Japanese stocks managed to eke out a gain of 0.09%, while the benchmark Hang Seng index in Hong Kong dropped by 1.93%. The technology sector also experienced a decline of 2.09%. Chinese A shares were down by 0.23% on Tuesday. E-mini futures for the S&P 500 traded almost flat, edging down by 0.03%.

The recent divergence in rate hike expectations between the Federal Reserve and the European Central Bank has resulted in the weakening of the U.S. dollar. While markets have largely priced in a 25-basis-point rate hike from the Fed this month, there are expectations that rates will decrease as early as December. On the other hand, investors anticipate rate hikes from the ECB and the Bank of England. In Asia trade, the U.S. dollar index dipped slightly to 99.71, hitting its lowest level since April 2022 on Friday. The euro, meanwhile, reached a fresh 17-month high of $1.1259, marking its ninth consecutive session of gains.

Investors are closely monitoring the Bank of Japan’s upcoming monetary policy meeting to determine whether it will begin phasing out its ultra-dovish policy. Benchmark 10-year Treasury notes remained flat with a yield of 3.7989%. U.S. crude rose by 0.32% to $74.39 per barrel, while Brent crude stood at $78.72, up 0.28%. Spot gold added 0.29% to $1,960.29 an ounce.

Selena Li reporting; edited by Simon Cameron-Moore and Sam Holmes