Asia report: Markets mixed after PBoC rate cut, Japan GDP growth

Patrick Munnelly, market analyst at TickMill Group, said equity markets in the region traded with mixed outcomes as participants processed key releases, including disappointing Chinese activity data and the People's Bank of China's unexpected reductions in its seven-day reverse repo and one-year medium-term lending facility (MLF) rates.

“The Nikkei 225 in Japan experienced an upswing following a robust gross domestic product report,” he noted.

“The report indicated a 6.0% expansion in Japan's economy, surpassing the projected 3.1% growth.

“This growth rate marked the fastest annualised pace since the fourth quarter of 2020.”

Markets respond to key data with a mix of gains and declines

In Japan, both the Nikkei 225 and the Topix experienced gains, with increases of 0.56% and 0.41%, ending the day at 32,238.89 and 2,290.31 points, respectively.

On Tokyo’s benchmark, Ebara Corporation led the pack with a notable 6.7% rise, followed closely by Japan Post Holdings and Mitsui Chemicals, which surged by 4.89% and 3.76% respectively.

Contrasting the positive momentum in Japan, China observed slight setbacks as the Shanghai Composite slipped 0.07% to 3,176.18, while the Shenzhen Component fell 0.7% to close at 10,679.73.

Leading the losers in Shanghai was Haohua Chemical Science & Technology, plummeting by 10.01%, with Beijing United Information Technology falling by 6.88%.

Over in Hong Kong, the Hang Seng Index registered a decline of 1.03%, concluding the day at 18,581.11.

Wharf Real Estate, Chow Tai Fook Jewellery Group, and Haidilao International reflected the overall negative sentiment, with declines of 8.13%, 4.69%, and 4.49% respectively.

South Korea’s markets remained closed on Tuesday, in observance of the National Liberation Day of Korea holiday.

Down under in Australia, the market sentiment was bullish, with the S&P/ASX 200 advancing by 0.38% to settle at 7,305.00.

Key performers in Sydney included Sims, surging by 6.3%, and Cochlear, which rose by 5.69%.

New Zealand's S&P/NZX 50 edged slightly lower, experiencing a minor dip of 0.05% to finish at 11,820.74.

Among the notable decliners in Wellington were Restaurant Brands NZ, which decreased by 3.46%, and KMD Brands, falling by 2.25%.

In currencies, the dollar was last up 0.03% on the yen and 0.17% on the Aussie, trading at JPY 145.61 and AUD 1.5441, respectively.

A similar upward trend was seen against the Kiwi, with the greenback increasing 0.15% to NZD 1.6760.

On the commodities front, oil prices were in a mixed state, with Brent crude futures last edging up 0.07% on ICE to $86.27 per barrel, while the NYMEX quote for West Texas Intermediate declined 0.07% to $82.45.

Growth in Japan, China's rate cuts, and Australia's inflation outlook in focus

In economic news, Japan's economy marked its third consecutive quarter of growth, fueled by a surge in exports due to a depreciating yen, according to data released on Tuesday.

The country recorded a robust 6% annual growth for the second quarter, surpassing the projected 3.1% expansion for the April-June period.

That favourable outcome was influenced by a weakening yen, which made Japanese products more cost-effective for global consumers.

Quarter-on-quarter GDP growth reached 1.5%, outperforming the 0.8% anticipated growth.

Furthermore, easing post-pandemic supply chain disruptions led to a 3.2% growth in exports during the second quarter.

Notably, car sales surged, and the influx of tourists, contributing to the net export figures, regained momentum, achieving over two-thirds of their pre-Covid levels.

“In all, export conditions are unlikely to revive anytime soon, or at least in the second half of this year,” said Duncan Wrigley at Pantheon Macroeconomics.

“Demand from EM Asia and the US is expected to remain muted, especially as the US may tip into a mild recession.

“Sticker inflation and higher interest rates have taken a toll on real wage growth and household purchasing power in Western economies, while China is failing to pick up the slack as its uneven recovery is sputtering.”

Wrigley said Japanese exports were cooling despite a weaker yen, adding that domestically, performance from consumption and investment would likely continue to disappoint.

“Against this dismaying economic backdrop, the Bank of Japan is unlikely to raise interest rates to combat inflation, despite CPI recently overshooting its expectations.

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

Elsewhere, the People’s Bank of China (PBoC) announced a surprise cut in interest rates on Tuesday, aiming to invigorate economic demand amidst a lukewarm recovery.

Contrary to market forecasts, the central bank lowered the rate on CNY 401bn of its one-year medium-term lending facility loans by 15 basis points, bringing it to 2.5%.

The liquidity boost was intended to counterbalance a number of factors, including tax payments, ensuring adequate liquidity in the banking system.

It came against a backdrop of unsettling economic data and rising apprehensions about the stability of the real estate sector, further exacerbated by property developer Country Garden's recent declaration of a staggering $7.6bn loss and a pause on bond repayments.

“While fully warranted but in itself, however, it is unlikely to have much lasting benefit in the absence of government spending,” said SPI Asset Management partner Stephen Innes.

“The monetary policy effects are most likely to be neutral or could even be perceived as unfavourable in the sense that policymakers are starting to hit the panic button, especially in the face of a local confidence crisis.

“While Beijing has already done some things to ease the property sector's tensions, it's a day late and a yuan short.”

Furthermore, July's economic indicators underscored the challenges facing China.

Retail sales climbed by just 2.5% on an annual basis, falling short of the anticipated 4.5% rise.

Similarly, industrial production witnessed a year-on-year growth of 3.7%, missing the expected 4.4%.

Fixed asset investments experienced a 3.4% uptick for the initial seven months of this year, trailing behind the forecasted 3.8%.

While no detailed unemployment figures by age were released, it's notable that the general unemployment rate climbed to 5.3% in July.

Alarming records indicated the youth segment, aged 16-24, grappling with an unprecedented unemployment rate of 21.3% in June.

The National Bureau of Statistics meanwhile momentarily suspended the release of youth unemployment figures, hinting at potential revisions in its calculation approach.

A spokesman for the bureau said the method of calculating unemployment among young people needed to be reconsidered.

"The economy and society are constantly developing and changing. Statistical work needs continuous improvement", Fu Linghui told a news conference in Beijing.

Finally, the Reserve Bank of Australia in its minutes from its 1 August monetary policy meeting highlighted a “reassuring” inflation scenario in the country.

The board noted a steeper-than-expected dip in inflation during the June quarter, although service sector price hikes persisted.

While predicting sluggish economic growth in the coming months, the RBA said it expected that to aid in further curbing inflation.

Still, the central bank did not dismiss the possibility of additional monetary tightening, emphasising that such a decision would depend on emerging data and risk assessment evaluations.

Reporting by Josh White for Sharecast.com.