The majority of Asian markets increased on Monday as investors cheered evidence of declining US inflation; however, Hong Kong and Shanghai declined as statistics indicated that China’s economy was suffering due to the Covid-19 limitations.
The markets have been worried that additional hikes of a comparable magnitude could stifle economic recovery after two straight increases in borrowing costs by the Federal Reserve of three-quarters of a percentage point.
Last week’s indicators of improved inflation statistics have sparked discussion about whether the Fed may change course more rapidly from its current stance of moving aggressively to raise interest rates.
“We’re definitely heading in a better direction,” Kristina Hooper, Invesco chief global market strategist, told Bloomberg Television.
“It looks like we are passed peak for inflation. The problem is inflation is still very, very high.”
Wall Street ended Friday on a positive note after consumer and producer price data indicated a meaningful cooling in inflation.
The optimistic mood carried over to Asia, with Tokyo climbing one percent as GDP data showed the Japanese economy recovering after the government lifted Covid-19 curbs on businesses.
Sydney rose 0.5 percent and Taipei was up 0.7 percent. Wellington, Manila, and Kuala Lumpur also saw gains. Seoul and Mumbai were closed for holidays.
Among the few losers, Hong Kong and Shanghai fell as Chinese economic figures came in weaker than analysts’ expectations.
China unexpectedly cut key interest rates as a raft of data released Monday indicated the world’s second-largest economy was struggling with virus restrictions and a slumping property market.
The figures showed China’s industrial production and retail sales growth for July came in lower than expected. Industrial production was up 3.8 percent year-on-year, but down from 3.9 percent in June and below Bloomberg economists’ forecasts of a 4.3 percent increase.
“The risk of stagflation in the world economy is rising, and the foundation for domestic economic recovery is not yet solid,” China’s National Bureau of Statistics warned.
Beijing’s rigid adherence to a zero-Covid strategy has held back economic recovery as snap lockdowns and long quarantines batter business activity and a recovery in consumption.
“July’s economic data is very alarming,” Raymond Yeung, Greater China economist at Australia & New Zealand Banking Group, told Bloomberg.
“The Covid-zero policy continues to hit the service sector and dampen household consumption.”
Oil was lower in Asian trade, with WTI down one percent at $91.20 while Brent was off 0.9 percent at $97.25.