Asia report: Markets fall as China keeps loan prime rates on hold

Asia-Pacific stock dropped on Wednesday following China's decision to maintain its one-year and five-year loan prime rates unchanged.

Traders were also looking ahead to the US Federal Reserve's rate decision, due later in the global day.

“Stocks in Asia have dropped following modest losses on Wall Street,” said Stephen Innes at SPI Asset Management.

“Market participants are positioning themselves for the Federal Reserve's upcoming policy decision, with expectations of higher for longer interest rates persisting to combat inflation.

“Adding to the regional malaise, Chinese leaders have maintained the one- and five-year loan prime rates, particularly risk-averse, given the property concerns.”

That decision, Innes noted, followed the central bank's recent move to keep policy rates unchanged while officials evaluated the economic consequences of existing stimulus measures.

“There doesn't seem to be a one-stop policy fix through the money market feedback loop, as cutting rates could continue to drive capital outflows via the weaker yuan foreign exchange channels.”

Markets stumble across Asia-Pacific region

In Japan, the Nikkei 225 and the Topix registered losses, closing down by 0.66% at 33,023.78 and 1% at 2,406.00, respectively.

Among the significant decliners on Tokyo’s benchmark were Kansai Electric Power Co, falling by 4.33%, Sumitomo Dainippon Pharma, with a decline of 4.16%, and Inpex, which dropped by 3.88%.

Chinese markets mirrored the negative trend, with the Shanghai Composite sliding 0.52% to finish at 3,108.57 and the Shenzhen Component slipping 0.53% to 10,072.46.

Fujian Furi Electronics and Harbin Air Conditioning faced steep drops, both plummeting by over 10% in Shanghai.

The Hang Seng Index in Hong Kong also dropped, ending the day 0.62% lower at 17,885.60.

Notable decliners in the special administrative region included Sunny Optical Technology Group, which descended by 5.95%, Shenzhou International Group, which fell by 3.43%, and WuXi Biologics, which dropped by 3.46%.

In a contrasting performance, South Korea's Kospi edged slightly upwards by 0.02% to close at 2,559.74, as Pan Ocean and OCI Co stood out with gains of 9.13% and 5.77%, respectively.

Meanwhile, Australia's S&P/ASX 200 shed 0.46% to conclude at 7,163.30, with Contact Energy and Paladin Energy experiencing considerable drops of 5.41% and 4.48%, respectively.

The S&P/NZX 50 in New Zealand recorded a modest decline, ending 0.17% down at 11,324.82.

Among the most significant losers were KMD Brands, which slid 4.88%, and the A2 Milk Company, which dipped 2.11%.

On the currency front, the dollar was last 0.07% stronger on the yen, trading at JPY 147.97.

Conversely, the greenback lost 0.23% against the Aussie to AUD 1.5459 and 0.14% on the Kiwi, changing hands at NZD 1.6822.

In oil markets, Brent crude and West Texas Intermediate futures dropped 1.34% to $93.08 and 1.4% to $89.92, respectively.

China central bank stands pat on loan prime rates

In economic news, the People’s Bank of China kept its one-year and five-year loan prime rates steady for September, positioning them at 3.45% and 4.2%, respectively.

The decision came on the heels of a previous rate cut in August, where the one-year LPR saw a decline from 3.55% to the current 3.45%.

Meanwhile, the five-year LPR experienced its last downward adjustment in June, trimming from 4.3% to the present 4.2%.

“The Bank has clearly indicated that China will set monetary policy based on domestic economic needs first and foremost, rather than to influence the currency,” said Duncan Wrigley at Pantheon Macroeconomics.

“China is taking a targeted and reactive economic policy setting approach in response to the data.

“We see a good chance of further fiscal support in the fourth quarter and LPR cuts, both one-year and five-year, as part of calibrated support to nurture domestic demand, boost confidence within the private sector and support the property market.”

Moving to Japan, fresh figures showed a drop of 66.7% in its trade deficit for August, settling at JPY 930.5bn.

That was a notable improvement when juxtaposed against the deficit of JPY 2.79trn yen recorded in the same month the prior year.

Nevertheless, the data did not entirely align with predictions, as the trade deficit remained more expansive than the anticipated JPY 659.1bn forecast by economists polled by Reuters.

Delving deeper into the trade dynamics, imports into the Japanese economy saw a 17.8% year-on-year decline, while exports experienced a minor setback of 0.8% year-on-year.

Both of those figures contrasted slightly with Reuters' projections.

“Soggy global demand is likely to drag down Japan’s exports in the fourth quarter and early in 2024,” Pantheon’s Duncan Wrigley explained.

“The US and EU are struggling with low growth after hiking interest rates to elevated levels.

“China’s stimulus is targeted and likely to gain traction only gradually, given the prevailing headwinds in the property sector and saggy confidence among households and businesses.”

Finally on data, South Korea’s producer price index (PPI) grew 1% year-on-year in August.

The rise in the wholesale inflation rate was the first of its kind since July last year and presented a stark contrast to the 0.3% growth recorded in the prior month.

On a month-on-month basis, August's PPI rose 0.9% - a significant jump compared to July's modest 0.2% increment.

A deeper examination revealed that prices of agricultural, forestry, and marine products led the charge, with those commodities seeing a 3.6% escalation in prices year-on-year and an impressive 7.3% climb month-on-month.

Reporting by Josh White for Sharecast.com.