Asia report: Stocks slide across region after China inflation data

Stock markets were mostly lower in the Asia-Pacific region at the end of Wednesday’s trading, as investors digested rising inflation in China and looked ahead to a key inflation report out of the United States.

In Japan, the Nikkei 225 was down 0.65% at 27,819.33, as the yen strengthened 0.07% on the dollar to last trade at JPY 134.96.

Fashion firm Fast Retailing was down 2.74%, while automation specialist Fanuc added 0.87% and technology conglomerate SoftBank Group advanced 0.38%.

The broader Topix index was off 0.17% by the end of trading in Tokyo, settling at 1,933.65.

On the mainland, the Shanghai Composite was off 0.54% at 3,230.02, and the technology-heavy Shenzhen Component was 0.87% weaker at 12,223.51.

Fresh data out of Beijing showed producer prices rising 4.2% year-on-year in July, falling short of the 4.8% growth tipped by economists in a Reuters poll.

Craig Botham at Pantheon Macroeconomics said energy was a big driver of the moves, noting that by industry, coal mining inflation - which was as high as 104% year-on-year in October last year - had been falling, and was now at 20.7%, from 31.4% in June.

Petroleum and natural gas extraction inflation also dropped in July, to 43.9%, from 54.4%.

“The production and supply of electricity, heating, and gas also saw lower inflation rates in July,” Botham explained.

“These slowing upstream costs should pass into downstream inflation within the next couple of months.”

Global prices for energy and industrial commodities had been falling recently, Craig Botham said, and in the case of the latter, the year-on-year change was negative in July.

“Given the lag between international prices and Chinese PPI, further declines this year - with some noise - are baked in, and we think PPI inflation will turn negative early next year.”

China’s consumer prices, meanwhile, were 2.7% higher than the same time last year, reaching their quickest cadence of growth in two years.

It was still, however, below the 2.9% figure pencilled in by Reuters polling.

“The surprise, relative to expectations, comes from the weakness in core inflation,” Pantheon’s Craig Botham said.

“The reopening of China’s economy should - in theory - have put some pressure on core, and particularly services, as consumers increased spending and enjoyed freedom.

“We didn’t expect it to last long, but a month’s blip is very brief. Domestic demand looks soft.”

Inflation had likely now peaked, Botham added, noting that wholesale pork prices had retreated from recent highs, with base effects also taking some of the pressure off food inflation.

“Core inflation is unlikely to climb much from here, particularly as the fall in PPI feeds through to core goods.”

South Korea’s Kospi lost 0.9% to 2,480.88, while the Hang Seng Index in Hong Kong dropped 1.96% to 19,610.84.

Chinese property development giant Longfor Group closed down 16.4% to reach a new 52-week low on the special administrative region’s bourse.

The company reported a near-58% tumble in contracted sales in the first seven months of the year, amid a massive slowdown in the mainland construction and housing sectors.

Seoul’s blue-chip technology stocks were on the back foot as well, with Samsung Electronics down 1.5% and SK Hynix sliding 3.47%.

Traders globally were looking ahead to fresh inflation data out of the United States, due later in the global day.

Economists were expecting consumer prices to have risen 8.7% in July - still well above general levels of price rises, but down from the 9.1% figure reported in June.

“The recent downside correction in energy and commodity prices, the sharp fall in inflation expectations, as released by the NY Fed yesterday, and deflation in online goods prices point that we may see some relief on consumer prices of last month,” said Swissquote senior analyst Ipek Ozkardeskaya.

“Rising wages, and high rents remain factors that could keep inflation sticky at high levels.”

Ozkardeskaya said an inflation figure in line with expectations, or ideally softer, would temper hawkish Federal Reserve expectations, pull US yields lower and trigger a relief rally across stock markets.

“We could then see the S&P 500 make another attempt on the critical 4,200 resistance.”

Oil prices were lower at the end of the Asian day, with Brent crude futures last down 1.29% on ICE at $95.07 per barrel, and West Texas Intermediate falling 1.3% on NYMEX to $89.32.

In Australia, the S&P/ASX 200 was 0.53% weaker at 6,992.70, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 0.01% lower at 11,752.09.

Both of the down under dollars were stronger on the greenback, with the Aussie last ahead 0.09% at AUD 1.4342, and the Kiwi advancing 0.39% to NZD 1.5840.

Reporting by Josh White at Sharecast.com.