Asia report: Markets rebound after flurry of inflation data

Markets in the Asia-Pacific region attempted a rebound on Friday, driven by investor reactions to fresh inflation data from around the region.

Core consumer prices in Tokyo surprised by rising more than anticipated, drawing attention to the market sentiment, while the focus was also on Australia’s third-quarter producer price index.

“Asian stocks are trading with a positive bias, driven by well-received earnings reports from Amazon and Intel, which lifted sentiment after a mostly lower close on Wall Street,” said TickMill market analyst Patrick Munnelly.

“The Nikkei 225 is experiencing gains, primarily driven by its Industrial sectors, potentially in response to the US GDP metrics, while pharmaceuticals are underperforming, with Takeda shares declining over 7% following their earnings report.”

Munnelly noted that the Hang Seng Index and Shanghai Composite opened with mixed performances, with the former showing strength as its earnings season gained momentum.

“However, sentiment for China remains muted, despite reports from China’s Securities Journal suggesting that China is likely to reduce the reserve requirement ratio in the fourth quarter to support government bond issuance.”

Stocks in the green across the region, except New Zealand

In Japan, the Nikkei 225 saw a notable gain of 1.27%, reaching 30,991.69, while the Topix index also rose by 1.37% to 2,254.65.

The positive momentum was reflected in the strong performance of companies on Tokyo’s benchmark, like Fujitsu, up 11.99%; Kawasaki Kisen Kaisha, ahead 4.13%; and Mitsui Chemicals, which added 4.1%.

China’s markets showed resilience, with the Shanghai Composite gaining 0.99% to 3,017.78 and the Shenzhen Component jumping 2.14% to 9,770.84.

Notable gainers in Shanghai included Guangdong Dcenti, up 10.03%, and China Resources D-C Pharm, which advanced 10.01%.

Hong Kong’s Hang Seng Index finished 2.08% higher at 17,398.73, with solid performances from Hansoh Pharmaceutical Group, which surged 11.75%, while CSPC Pharma and Sino Biopharmaceutical were 10.82% and 9.77% firmer, respectively.

In South Korea, the Kospi increased by 0.16% to 2,302.81, with strong gains from OCI Co, which jumped 12.9%, and Hyundai Develop, which was 7.05% higher.

Australia’s S&P/ASX 200 index showed modest gains of 0.21%, reaching 6,826.90, with standout performances from Contact Energy, up 7.09%, while Champion Iron rose 6.93%.

New Zealand’s S&P/NZX 50, however, experienced a slight decline of 0.75% to 10,766.82, with Port of Tauranga losing 4.63% and Mercury NZ closing behind by 4.4%.

In currency markets, the dollar was down on the region’s significant traders, last falling 0.25% on the yen to JPY 150.02, while it slipped 0.47% against the Aussie to AUD 1.5743 and by 0.11% on the Kiwi to change hands at NZD 1.7161.

On the oil front, Brent crude futures were last up 2.26% on ICE at $89.92 per barrel, while the NYMEX quote for West Texas Intermediate was 2.21% firmer at $85.05.

Tokyo consumer inflation surges, China industrial profits contract

In economic news, Tokyo saw a headline inflation rate of 3.3% for October, marking a significant acceleration from the 2.8% recorded in September.

Core inflation, which excludes the volatile prices of fresh food, stood at 2.7%, slightly surpassing economists’ expectations of 2.5% as per Reuters polling.

Tokyo’s inflation figures serve as a vital leading indicator for broader national trends, with the data keenly awaited ahead of the Bank of Japan’s monetary policy meeting scheduled for next Monday and Tuesday.

“The Bank of Japan (BoJ) is likely to view the unwelcome rise in the Tokyo headline CPI as reflecting another bout of cost-push inflation, on the back of higher import costs, especially energy,” said Duncan Wrigley at Pantheon Macroeconomics.

“The tourism sector is hot, but other services sectors are tepid; even the tourism sector seems to be topping out.”

Wrigley noted that Japan’s flash services purchasing managers’ index (PMI) fell 2.7 points to 51.1 in October, led by a two-point drop in the new export orders index to 48.0, raising a warning signal about incoming tourism demand.

“We expect the Bank to hold fast on its negative policy rate in the fourth quarter, while making a tactical tweak to the yield curve control policy, but only if the market doesn’t expect it.”

In China, fresh official data revealed a concerning trend in industrial profits over the year’s first nine months.

Industrial firms in the country saw a contraction in profits, with a substantial 9% decline compared to the same period last year.

That figure followed an 11.7% year-on-year profit drop reported for the first eight months.

“We expect the overall trend of receding year to date fall in profits should hold for the rest of year,” Pantheon’s Duncan Wrigley added.

“The bumpy base from last year will play a role in the annual comparison of profits in the fourth quarter.

“The recent announcement of that China will issue an additional CNY 1trn in special treasury bonds in the fourth quarter should sustain growth in infrastructure and manufacturing investment, further supporting the recovery of producer prices and industrial profits.”

Wrigley expected business sentiment and manufacturing demand to stabilise as profits improved and on the back of a steadier outlook around fiscal stimulus despite challenging external conditions.

“Households’ confidence, however, will improve only gradually as the residential property sector is still in the doldrums.”

Finally on data, Australia’s producer price index (PPI) for the third quarter saw a robust 1.8% increase on a quarter-on-quarter basis - a significant uptick from the prior quarter’s 0.5% rise.

On a year-on-year basis, the PPI grew by 3.8%, though marginally cooler than the previous reading of 3.9%.

The economic indicators set the stage for the upcoming monetary policy decision by the Reserve Bank of Australia, scheduled for 7 November.

Reporting by Josh White for Sharecast.com.