Asia report: Markets mixed on inflation data, RBNZ holds rates

Traders across the region were digesting wholesale inflation figures from Japan and China, as well as a somewhat dovish statement from New Zealand’s central bank, leading to diverging market performances.

“US stocks hit new highs, leading to volatile swings in Asian markets as traders assessed Fed chairman [Jerome] Powell's remarks on the US economic outlook,” said TickMill market analyst Patrick Munnelly.

“Australian and Chinese stocks fell, while those in Hong Kong and Japan rose.

“China's consumer prices barely increased in June, indicating ongoing deflationary pressures.”

Munnelly noted that the S&P 500 rose for a sixth straight session overnight, while the Nasdaq 100 set another record.

“Central bankers around the world are becoming more confident that markets may be moving towards a period of lower interest rates, as they have struggled to control inflation for a long time.

“The Reserve Bank of New Zealand announced that they expect headline inflation to return to the target range of 1% to 3% in the second half of this year, signalling a less aggressive stance compared to their previous outlook in May.

“This led to increased speculation of rate cuts in New Zealand, causing the kiwi to decline by 0.7%.”

Markets mixed across the Asia-Pacific region

In Japan, the Nikkei 225 extended its gains from Tuesday, rising by 0.61% to close at a record high of 41,831.99.

Similarly, the broader Topix index gained 0.47%, ending the day at 2,909.20, also marking a new closing high.

Key contributors to the gains on Tokyo’s benchmark included Sapporo Holdings, which surged by 8.99%, Mitsubishi Motors, up by 8.63%, and Tokio Marine, which rose by 4.83%.

China's markets faced downward pressure as inflation numbers slightly missed expectations, with a recorded rise of 0.2% against an anticipated 0.4%.

The Shanghai Composite fell by 0.68% to 2,939.36, and the Shenzhen Component decreased by 0.1% to 8,697.22.

Notable declines in Shanghai were seen in Nanjing Chixia Development, which plummeted by 10.05%, Zhuzhou Smelter Group, down by 10.04%, and Shan XI Hua Yang Group New Energy, which dropped by 10.03%.

Hong Kong's Hang Seng Index also declined, closing 0.29% lower at 17,471.67.

Major losers included China Hongqiao, down by 6.84%, China Shenhua Energy, which fell by 4.95%, and China Petroleum & Chemical Corporation, which decreased by 3.57%.

South Korea's Kospi edged up slightly by 0.02% to close at 2,867.99.

Leading gainers in the market were Hanmi Pharm, up by 6.53%, LG Innotek, which rose by 4.55%, and SKC, gaining 4.32%.

Australia's S&P/ASX 200 index dropped by 0.16% to 7,816.80, with significant losses from Insignia Financial, down by 7.2%, Contact Energy, which fell by 4.7%, and Orora, down by 4.5%.

New Zealand's S&P/NZX 50 performed well, rising by 0.8% to 11,943.33.

Top performers included Skellerup Holdings, up by 4.48%, Restaurant Brands New Zealand, which gained 4.23%, and Scales Corporation, up by 4.19%.

In currency markets, the dollar was last up 0.12% on the yen to trade at JPY 161.53, while it rose 0.02% against the Aussie to AUD 1.4838, and jumped 0.9% against the Kiwi to change hands at NZD 1.6473.

Oil prices saw modest gains, with Brent crude futures last up 0.19% on ICE at $84.82 per barrel, and the NYMEX quote for West Texas Intermediate rising 0.29% to $81.65.

China and Japan inflation in focus, RBNZ leaves rates unchanged

In economic news, China's consumer prices increased for the fifth consecutive month in June but fell short of expectations, while producer price deflation continued.

Despite government support measures, domestic demand in the world's second-largest economy remained sluggish.

According to the National Bureau of Statistics, China's consumer price index (CPI) rose 0.2% year-on-year in June, compared to a 0.3% increase in May, marking the slowest growth in three months and below the 0.4% rise forecast by Reuters.

Food prices dropped 2.1% year-on-year, with fresh vegetable prices plunging 7.3% after a 2.3% increase in May, and fresh fruit prices falling 8.7%, worsening from a 6.7% decline in May.

Month-to-month, the CPI edged down 0.2%, exceeding the expected 0.1% fall.

The producer price index (PPI) meanwhile fell by 0.8% year-on-year in June, matching forecasts and improving from the 1.4% decline in May.

That was the smallest drop in 17 months, largely due to a lower base from the previous year.

In Japan, wholesale inflation accelerated in June as the yen's depreciation increased the cost of raw material imports, raising market expectations of a potential interest rate hike by the central bank.

The Bank of Japan's data showed that the corporate goods price index (CGPI), which measures the prices companies charge each other for goods and services, rose 2.9% year-on-year in June, matching market forecasts.

That marked an acceleration from May's revised 2.6% gain and was the fastest pace since August last year.

The CGPI index reached a record high of 122.7 for the seventh consecutive month, while the yen-based import price index surged by 9.5% in June, up from a revised 7.1% rise in May, indicating that the weaker yen was driving up the costs for companies importing raw materials.

That was the fastest increase since February 2023.

In New Zealand, the Reserve Bank of New Zealand (RBNZ) said it was considering cutting interest rates, contingent on domestic inflationary pressures, although it left the official cash rate unchanged at 5.5%.

The upcoming June quarter consumer price inflation report could prompt the RBNZ to lower rates as early as August.

In its latest statement, the central bank shifted its policy tone, indicating that “inflation approaching target range” was a priority.

The central bank noted that restrictive monetary policy had “significantly reduced consumer price inflation”, a change from earlier statements that it had simply “lowered” inflation.

The RBNZ said it now expected headline inflation to return to its 1% to 3% target range in the second half of the year.

Reporting by Josh White for Sharecast.com.