Asia report: Markets weaker as PBoC keeps rates steady

Markets in Asia were lower across the board on Friday, with Hong Kong’s bourse leading the losses, after China’s central bank stood pat on interest rates.

In Japan, the Nikkei 225 was down 0.98% at 27,013.25, as the yen strengthened 0.14% on the dollar to last trade at JPY 109.59.

The benchmark’s major components were all in the red, with automation specialist Fanuc down 3.27%, fashion firm Fast Retailing losing 1.62%, and technology conglomerate SoftBank Group sliding 3.6%.

Carmakers were on the back foot again as well, with Honda Motor down 4.84%, Toyota Motor losing 4.09%, and Nissan Motor sliding 7.25%.

Sentiment for the sector turned negative on Thursday, after Toyota confirmed it was taking the shears to its global output from September, cutting it by 40% from its previous plans.

The broader Topix index was off 0.87% by the end of trading in Tokyo, closing at 1,880.68.

On the mainland, the Shanghai Composite was 1.1% softer at 3,427.33, and the smaller, technology-heavy Shenzhen Composite lost 1.17% to 2,388.96.

The People’s Bank of China left interest rates unchanged in its latest decision, as markets had anticipated, with the one-year loan prime rate at 3.85% and the five-year rate 4.65%.

“These rates are unlikely to change unless the PBoC adjusts its interest rate corridor, which it hasn’t done since April 2020,” said Pantheon Macroeconomics chief Asia economist Freya Beamish.

“Going forward, economic activity is set to remain depressed, thanks to restrictions at home and abroad, aimed at containing the ‘Delta’ variant.

“The hit to growth is temporary, however, and we expect the PBoC to hang in there through the quarter, by which stage we think growth will start to pick up again.”

In the meantime, Beamish said the central bank was likely to deal with any threat of interbank liquidity tightening with a further 50 basis point cut to its reserve requirement ratio (RRR), as soon as next month.

“A slew of MLF funds are maturing, and local government debt issuance is set to skyrocket, both putting strains on the interbank market.

“An RRR cut would help to counterbalance those forces, rather than aiming at easing market rates.”

Freya Beamish said it was “unlikely” that the bank responded to widening spreads by cutting rates.

“An RRR cut would help at the margin, and the authorities will continue to deal with problems on a case-by-case basis, for now, rather than by a system-wide rate cut.”

South Korea’s Kospi was 1.2% lower at 3,060.51, while the Hang Seng Index in Hong Kong lost 1.84% to 24,849.72.

Those losses left the special administrative region’s benchmark more than 20% down from its highs in February, with technology shares mostly on the wrong side of the ledger once again.

Alibaba was down 2.59%, Meituan lost 4.54% and JD.com was 2.11% weaker, although Tencent managed gains of 1%.

The blue-chip technology stocks were mixed in Seoul, with Samsung Electronics down 0.55%, while chipmaker SK Hynix was flat.

Oil prices were lower as the region entered the weekend, with Brent crude last down 0.77% at $75.94 per barrel, and West Texas Intermediate losing 0.74% at $63.03.

In Australia, the S&P/ASX 200 slipped 0.095% to 7,460.90, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 0.13% weaker at 12,940.49.

The down under dollars were both weaker against the greenback, with the Aussie last off 0.29% at AUD 1.4032, and the Kiwi retreating 0.18% to NZD 1.4674.