Hang Seng Index, ASX 200, Nikkei 225 Index: Asia Responds to China PMI and RBA Decisions; What’s Next?
- Asian markets showed mixed reactions Tuesday, with the Hang Seng Index and ASX 200 facing downturns.
- Decline in China’s Caixin Services PMI raises questions over Beijing’s economic stability.
- US manufacturing’s modest role in GDP keeps investor sentiments unhinged despite factory order dip.
It was a mixed Tuesday session for the Asian markets. The Hang Seng Index reversed gains from Monday on weaker-than-expected China PMI numbers, with the ASX 200 also seeing red. However, the Nikkei bucked the trend on a stronger USD/JPY and easing bets on a shift in BoJ monetary policy.
The China Caixin Services PMI slid from 54.1 to 51.8, raising more concerns over the Chinese economy. While Beijing attempts to stabilize the real estate sector and boost support to the private sector, investors remain sensitive to weak economic indicators.
Later in the Asian session, the RBA monetary policy decision provided the ASX 200 with modest support. However, household spending numbers from Japan should ease the expectations of a BoJ shift from ultra-loose.
Bank of Japan Governor Ueda emphasized the importance of wage growth and demand to drive inflation and force a shift from ultra-loose policies. However, household spending fell by 2.7% in July, indicating a lack of immediate demand.
Investors to Brush Aside US Factory Orders
Overnight US economic data is not expected to sway investor sentiment today. Despite a decline in factory orders, it’s unlikely to alter Fed policy intentions, given that manufacturing comprises less than 30% of the US economy.
Factory orders fell by 2.1% in July versus a 2.3% increase in June. Economists forecast a 2.3% decline.
Beijing in Focus Ahead of the G20
The China Caixin services PMI numbers from China put the spotlight on Beijing. Investors will need more details on the new government bureau to support the private sector. Uncertainty lingers on whether Beijing can do enough to reboot the Chinese economy.
Australian GDP data may indicate China’s macroeconomic influence on the region. Economists predict Australia’s economy to grow 0.3% in Q2, up from 0.2% in Q1, but anticipate a year-over-year slowdown from 2.3% to 1.7%.
China is a vital export market for Australia, making it vulnerable to its weak demand. This affects the Australian trade balance, economy, and currency. Trade contributes 20% of Australian jobs.
Investors Likely to Fret Over the US ISM Non-Manufacturing PMI
Euro area service sector PMI activity contracted more sharply than expected in August. Investors will likely fear a similar trend across the US services sector. With the US services sector accounting for more than 70% of GDP, a contraction could reignite fears of a US hard landing.
In contrast, a hotter-than-expected ISM Non-Manufacturing PMI could refuel hawkish Fed bets. Economists forecast the ISM Non-Manufacturing PMI to slip from 52.7 to 52.5.
The ASX 200 slipped by 0.06% on Tuesday. It was a mixed session for the big four banks and mining stocks. The RBA interest rate decision reversed China PMI-fueled losses.
The National Australia Bank (NAB) and The Commonwealth Bank of Australia (CBA) ended the day with gains of 0.21%. ANZ Group (ANZ) also avoided the red, rising by 0.04%. However, Westpac Banking Corp (WBC) tumbled by 1.37%.
Economic concerns, household finances, and inflation/interest rates affect borrowing costs, leading to more non-performing loans which impact bank liquidity and interest margins.
Fortescue Metals Group (FMG) and Newcrest Mining (NCM) ended the day with losses of 0.74% and 0.54%, respectively. However, Rio Tinto (RIO) and BHP Group Ltd (BHP) gained 0.17% and 0.37%, respectively. The latest uptrend in iron ore prices provided further support.
However, a pullback in crude oil prices weighed on oil stocks. Woodside Energy Group (WDS) and Santos Ltd (STO) ended the day down 0.58% and 0.38%, respectively.
Hang Seng Index
The Hang Seng Index slid by 2.06% on Tuesday. The Caixin Services PMI weighed on investor sentiment.
Alibaba Group Holding Ltd (HK:9988) and Tencent Holdings Ltd (HK:0700) saw losses of 0.86% and 1.32%, respectively.
Bank stocks ended the day in negative territory. The Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) fell by 1.34% and 1.38%, respectively. HSBC Holdings PLC ended the day with a 1.87% loss. Uncertainty toward the Chinese economy weighed on the banking sector.
(For reference purposes only)
The Nikkei 225 ended the day up 0.30%.
Bank stocks had a mixed session. Sumitomo Mitsui Financial Group (8316) ended the day flat, while Mitsubishi UFJ Financial Group gained 0.25%.
Looking at the main components, it was also a mixed session.
Tokyo Electron Limited (8035) and SoftBank Group Corp. (9984) gained 0.98% and 0.11%, respectively. However, Sony Corp. (6758) declined by 0.28%, with Fast Retailing Co (9983) and KDDI Corp. (9433) falling by 0.03% and 0.07%, respectively.
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