Asia Pacific Markets Mixed; China Inflation Data Raises Policy Concerns

The major Asia Pacific stock indexes finished mixed on Tuesday following the release of mixed Chinese inflation data. Chinese consumer inflation came in higher than expected, but producer prices in August posted their worst year-on-year contraction in three years. In other news, a report on Australian business confidence came in lower than expected. In Japan, an early report on machine tool orders showed further weakness.

On Tuesday, Japan’s Nikkei 225 Index settled at 21392.10, up 73.68 or +0.35%. Hong Kong’s Hang Seng Index closed at 26683.68, up 2.28 or +0.01% and South Korea’s KOSPI Index finished at 2032.08, up 12.53 or +0.62%.

China’s Shanghai Index settled at 3021.20, down 3.54 or -0.12% and Australia’s S&P/ASX 200 Index closed at 6614.10, down 33.90 or -0.51%.

Chinese Inflation Data

China’s Consumer Price Index (CPI) rose 2.8% as compared to the previous year in August, above a 2.6% growth forecast by analysts in a Reuters poll. Analysts said a jump in food prices was responsible for most of the gain. Food prices soared 10% year-on-year in August, following a 9.1% surge in July. Most of that was fueled by a 46.7% year-on-year surge in pork prices.

China’s Producer Price Index (PPI) fell 0.8% from a year earlier, according to the National Bureau of Statistics. That was a little better than the forecast calling for a drop of 0.9%.

Rising CPI and falling PPI could raise a problem for policymakers since they are trying to stimulate the economy with lower interest rates. Lower rates could prop up the PPI, but they could also send the CPI higher, which could hurt the economy if it starts to run away from the benchmark.

Falling Australian Business Confidence

A weak NAB Business Confidence report weighed on the stock market, coming in at 1, down from the previously reported 4. The report suggests there is unlikely to be an imminent turnaround in business conditions, NAB Chief Economist Alan Oster said.

Japan Economic News

Preliminary Machine Tool Orders came in at -37.1%, lower than the -33.0% forecast as the trade war sapped demand from China, the industry’s biggest market and a vital growth driver.

China is widely seen as the main culprit behind the slowdown. The escalating trade war between the United States and China have spurred many Chinese manufacturers to think twice about committing to machine tool purchases.

U.S.-China Trade Relations

U.S. Treasury Secretary Steven Mnuchin said Monday Washington and Beijing have a “conceptual” agreement on enforcement concerns. Trade negotiations between the economic powerhouses are expected to continue in early October.

Iris Pang, greater China economist at ING, said no “material progress” was expected in the upcoming trade talks. “Both sides seem to be standing firm, and are unlikely to give concessions anytime soon.”

However, there is hope that perhaps there will be some “material progress” at the meeting. Politico reported that China made a peace proposal in a phone conversation with top trade officials last week to buy an unspecified quantity of U.S. agricultural goods.

The report, citing people familiar with the talk, said the offer could hinge on whether the U.S. eases export restrictions on Chinese telecom giant Huawei and postponing the October 1 round of tariffs.