Asia Markets wrap
Asia Markets wrap

Hong Kong: Financial markets recovered from lows struck after China published data which showed its recovery was starting to flag as investors became hopeful about a stalled US stimulus package going through. Australian markets rose after its central bank Governor Philip Lowe said fiscal stimulus was required to support the economy.

China’s CSI 300 index added 1.49% and Japan’s Nikkei 225 edged up 0.19%. But Hong Kong’s Hang Seng benchmark was down 0.2% after the government lowered its forecast for GDP for the full year to a range of -6% to -8% from -4% to -7% as announced in late April.

Australia’s S&P ASX 200 rose 0.64% after the country’s central bank chief said there was a need to provide fiscal stimulus.

“Government policies that support people’s incomes, that add to aggregate demand through direct government spending and that make it easier for firms to hire people all have important roles to play,” Lowe said to the House of Representatives Standing Committee on Economics.

Eyes on Washington

But most interest is focused on the political situation on Capitol hill.

“All eyes are now set on Washington as markets eagerly await fiscal stimulus. This crystal clear constraint is why our Geopolitical Strategy service maintains that a deal will ultimately be reached,” BCA Research economists said in a note, referring to Republicans and Democrats willingness to compromise with an eye to achieving different objectives.

Democrats believe that without relief to workers the economy and stock market will relapse, assuring them of a victory in November, BCA said. The research firm said Republicans have a perception that with the $600 a week benefit expiring, individuals will view taking a temporary job as more attractive than remaining unemployed at lower benefits. This will increase the pool of labor supply and facilitate reopening and recovery of businesses.

Earlier, China reported a surprise fall in retail sales in July and industrial output was slower than expected underlining the uncertain path ahead after Beijing loosened restrictions as the pandemic spread slowed. But with the economy starting to show signs of stability, the central bank was unlikely to embark on large scale stimulus.

“Overall activity growth was largely stable in July, though the recovery in IP and retail sales was slower than expected,” Goldman Sachs analysts said in a note.

“With activity growth and unemployment largely steady, CPI and PPI inflation rising, and the virus increasingly under control without full-scale lockdown, policymakers likely see a lack of strong rationale to loosen their policy stance incrementally for now.”

Flood damage

With the Chinese economy looking inwards for growth, the challenge posed by the flood situation was likely to weigh.

“The damage caused by the recent flooding is evident in the slower retail sales growth in rural areas, and fixed asset investment also fell 9% YoY YTD in the central area of China, along the Yangtze River where most of the flooding is located,” said Iris Pang, ING Bank’s Chief Economist for Greater China.

“We expect there will be reconstruction work when the flood is over, but that could be slow given the persistence of tight social distancing measures in China. We continue to monitor our GDP forecast of 0.5% for the full year for a possible amendment.”

Gold prices hovered around $1,950, stabilising after the recent correction and the dollar was marginally weaker against a basket of currencies trading at around 93.20. US Treasuries are firm with the 10-year yield dipping a basis point to 0.70%.

Credit markets remain busy with ICBC Financial, and Vedanta Resources, set to launch bond offerings next week.

ATF China Bond50 Index: Bank bonds rise on speculations PBoC has begun silent QE

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Asia Stocks

# Japan’s Nikkei 225 index added 0.17%

# Australia’s S&P ASX 200 climbed 0.58% 

# Hong Kong’s Hang Seng index fell 0.19%

# China’s CSI300 jumped 1.49%

# The MSCI Asia Pacific index advanced 0.1%.

Stock of the day

Li Ning rose as much as 11% after the sportswear company reported a net profit rise of 22% in the six months to June with margin improvement.

This report appeared first on Asia Times Financial.