Asia report: Markets weaker after soft China data

Markets in Asia closed weaker on Monday, as investors digested fresh economic data out of Japan and China.

In Japan, the Nikkei 225 was down 1.62% at 27,523.19, as the yen strengthened 0.19% on the dollar to last trade at JPY 109.38.

It was a day of losses for the benchmark’s major components, with automation specialist Fanuc down 2.78%, fashion firm Fast Retailing losing 2.93%, and technology conglomerate SoftBank Group off 2.14%.

The broader Topix index was 1.61% weaker by the end of trading in Tokyo, settling at 1,924.98.

Japan’s economy expanded 0.3% quarter-on-quarter in the second quarter, according to fresh data on Monday, having contracted 0.9% in the prior period.

Markets had priced in growth of 0.2% for the period.

“Both residential and non-residential capital expenditure growth was robust,” said Pantheon Macroeconomics chief Asia economist Freya Beamish.

“We still think business capex has room for a much more substantial rebound going forward, though, with the second quarter’s 1.7% rise relatively unimpressive, next to the 1.3% decline in the first.

“It seems that the gloomy domestic virus situation is holding back business confidence, despite stronger investment being warranted based on external indicators.”

Beamish noted that export growth was “strong” at 2.9%, after the 2.4% rise in the first quarter, but said that continued to be “swamped” by a much faster rise in imports.

Inventory shaved 0.2 percentage points off the headline, and was set to be “a drag”, after the 0.4 percentage point contribution in the prior three months.

“In fact, the backlog probably still hasn’t cleared,” Freya Beamish added.

“Going forward, growth will remain soft this year, with the virus hampering activity across the board.

“The main response is likely to be on the fiscal side, but the Bank of Japan’s new green fund-provisioning measure will help to keep its balance sheet expanding.”

On the mainland, the Shanghai Composite eked out gains of 0.03% to 3,517.34, and the smaller, technology-heavy Shenzhen Composite was 0.58% lower at 2,454.36.

Retail sales were 8.5% firmer year-on-year in July in China, according to official data out of Beijing earlier in the session, which fell far short of the 11.5% improvement pencilled in by analysts polled by Reuters.

Industrial production also came in lower than forecasts, growing 6.4% for July, compared to the 7.8% increase on the year predicted by Reuters polling.

Traders in South Korea were away from their desks for the Liberation Day holiday, while the Hang Seng Index in Hong Kong slid 0.8% to 26,181.46.

“We can look to Covid-related slowdowns, particularly the spread of delta in Asia, softer-than-expected Chinese data, and the fallout from a very poor University of Michigan consumer sentiment report on Friday,” said Markets.com chief market analyst Neil Wilson of the global mood on Monday.

“I’d even speculate that the tragedy in Afghanistan is a factor in the downbeat mood.

“This foreign policy disaster will have repercussions - [US] president Biden will never recover from it.”

Wilson said the scenes of chaos as the US evacuated Kabul was “too reminiscent” of Saigon.

Oil prices were lower at the end of the Asian day, with Brent crude last down 0.86% at $69.98 per barrel, and West Texas Intermediate losing 0.92% to $67.81.

In Australia, the S&P/ASX 200 was off 0.61% at 7,582.50, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 0.34% weaker at 12,720.15.

The down under dollars were both weaker against the greenback, with the Aussie last off 0.52% at AUD 1.3634, and the Kiwi retreating 0.22% to NZD 1.4232.