Asia report: Markets slip on Japan inflation, Evergrande US bankruptcy

Asia-Pacific markets faced turbulence on Friday, pressured by new economic indicators and corporate developments.

Japan's core inflation figures for July pointed to a contraction month-on-month, while in China, the real estate sector was further rattled as beleaguered real estate behemoth Evergrande filed for bankruptcy protection in the US.

“Equity investors are grappling with uncertainty regarding the market's next direction,” said Stephen Innes at SPI Asset Management.

“This uncertainty underscores the heightened responsiveness of equity markets to economic data.

“Markets seem to have adopted a ‘bad news is good news’ view, rallying on weak growth data and selling off on solid data - amid fears that too strong data will increase the risk of an additional rate.”

Most markets slump as China concerns continue

In Japan, the Nikkei 225 declined 0.55% to close at 31,450.76, with the broader Topix index slipping 0.7% to 2,237.29.

Among the most significant decliners on Tokyo’s benchmark were J.Front Retailing, which tumbled 4.31%, followed closely by Fujikura and Isetan Mitsukoshi Holdings, which retreated by 3.99% and 3.77% respectively.

The impact of Evergrande's filing was evident in China's markets, meanwhile, as the Shanghai Composite descended 1% to 3,131.95, and the tech-focused Shenzhen Component lost 1.75%, finishing at 10,458.51.

Changzhou Shenli Electrical Machine and Cashway Technology Co bore substantial hits in Shanghai, declining by 8.81% and 8.51% respectively.

Hong Kong's Hang Seng Index experienced a more significant drop of 2.05% to conclude at 17,950.85.

Major health and tech companies witnessed stark retractions, as Jd Health International plummeted by 13%, Alibaba Health Information Technology suffered a 9.28% reduction, and JD.com closed 5.34% lower.

South Korea's Kospi index dipped 0.61% to land at 2,504.50, with Posco International seeing a 6.54% decline, while Hanwha Ocean Co slipped 3.89%.

Contrasting the broader Asia-Pacific downtrend, Australia's S&P/ASX 200 saw a minor uptick, managing gains of 0.03% to 7,148.10.

Magellan Financial Group and Goodman Group stood out with significant gains of 13.26% and 7.28% respectively.

New Zealand's S&P/NZX 50 edged down 0.35% to 11,611.19, with Stride Property and Vista Group International leading the downtrend, declining by 2.72% and 2.63% respectively.

In forex markets, the dollar weakened against the region’s major trading currencies, falling 0.25% on the yen to trade at JPY 145.48.

The greenback also slipped around 0.01% against both the Aussie and the Kiwi, changing hands at AUD 1.5615 and NZD 1.6855, respectively.

Oil prices experienced marginal reductions, with Brent crude futures last down 0.37% on ICE at $83.81 per barrel, and the NYMEX quote for West Texas Intermediate decreasing 0.29% to $80.16.

Japan's inflation moderates as China's real estate troubles persist

In economic news, Japan's core inflation experienced a slight dip for the month of July.

According to official data, the rate eased to 3.1% from 3.3% observed in June, matching general market predictions.

The overall headline inflation rate remained static at 3.3%.

A more refined metric - ‘core-core’ inflation, which removes the influence of fluctuating items such as fresh food and energy - reported a figure of 4.2%, a small decline from June’s 4.3%.

“Overall, the Bank of Japan will probably look through the stickiness of non-energy inflation in July,” said Kelvin Lam at Pantheon Macroeconomics.

“Inflation is cooling more slowly than the Bank had anticipated, but we believe the policy-setting committee will retain its view that inflation is generally cost-push, driven mainly by the carry-over effect from higher import costs, thanks to the weak yen earlier.

“Domestic demand is likely to remain fairly muted, despite the pick-up in services inflation, underscored by real wage falling for the 15th consecutive month in June.”

Lam said that was underlined by a recent speech from the deputy governor.

“Policymakers are still unsure if the nominal wage increase witnessed so far will be strong enough to support consumption in a sustained manner, and whether this will then lead to sustained wage growth next year and beyond.

“As a result, we think the BoJ will continue to adopt a loose monetary stance for the rest of the year, with an aim to gradually phase out the yield curve control policy while maintaining the policy rate at -0.10%.”

Elsewhere, China's real estate sector seems to be grappling with intensified challenges.

Evergrande - once China's premier property developer and currently overwhelmed by debt - launched a chapter 15 bankruptcy filing in New York overnight, underscoring the continuing and severe strains within the Chinese real estate market.

Based in Guangzhou, Evergrande is speculated to be buried under a staggering debt load exceeding $300bn.

The developer's inability to fulfil its financial commitments in 2021 set off a chain reaction, causing default events in multiple other construction firms.

Reporting by Josh White for Sharecast.com.