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SYDNEY (Reuters) – Asian stockmarkets were pinned near one-month lows on Tuesday as China cut short-term loan rates and reverse repo rates, with investors awaiting shopping and industrial output data for more news on the slowing of the world’s second-biggest economy.
Japan was the major exception to the falls, with equities jumping on far stronger than expected economic growth data.
The U.S. dollar hovered near 2023 highs on Asian currencies on a combination of rising U.S. Treasury yields and nervousness about the extent of crisis in China’s property industry, which has been dragging down the yuan in spite of official resistance.
China’s rate cuts offered some hope that economic help was on the way, and in offshore trade the yuan hit a 9-1/2 month low of 7.2958 to the dollar.
The yen hit a nine-month low of 145.60 per dollar.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%.
Japan’s Nikkei rose 0.6% after data showed the country’s second-quarter growth boosted by tourism and car exports and running at an annualised 6% against expectations for 3.1%.
“The export news was heartening and bodes well for Japan’s continued trade competitiveness,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo, though he cautioned that domestic consumption indicators were soft.
Overnight, Wall Street indexes gained, led by megacap tech shares and especially chipmaker Nvidia (NASDAQ:NVDA), which jumped 7.1% after Morgan Stanley (NYSE:MS) analysts called it a “top pick”.
The Nasdaq rose 1% and Nasdaq 100 futures were up 0.2% in the Asia session. The S&P 500 rose 0.6% overnight and futures rose 0.1% in Asia.
A slight improvement is expected from Chinese retail sales figures due around 0200 GMT, though that may not shift a mood that is increasingly dark as things go from bad to worse for the property sector and start to spill over into other assets.
China’s largest private real estate developer Country Garden has struggled to meet debt dues and is now seeking to delay payment on a private onshore bond.
Once considered a more financially sound developer, its woes are a chilling signal to homebuyers and financial firms as peers also edge toward the precipice in the absence of large-scale help from Beijing.
Contagion already seems to have reached parts of the financial system, with Zhongrong International Trust Co, a major trust company that traditionally exposed to real estate, missing repayment obligations on some investment products.
J.P. Morgan analysts warned of a “vicious cycle” of real estate financing challenges and said trust defaults could wipe 0.3% to 0.4% from China’s growth directly.
“We reckon that markets still underestimate the aftermath of the significant collapse in China’s property sector, which accounts for more than half of global new home sales,” said analysts at Japanese bank Nomura.
“The chain reaction triggered by slumping new home sales may lead to a rising number of developers’ defaults, a sharp contraction of government revenue, falling demand for construction materials, declining wages…weaker consumption, and faltering financial institutions.”
In bond markets, U.S. and European yields rose on Monday as investors see signs of economic resilience as likely to keep rates elevated for a prolonged period.
Benchmark 10-year Treasury yields rose another 2 basis points to 4.20% on Tuesday. Two-year yields were steady at 4.97%.
In currencies, the euro was dunked to a one-month low of $1.0874 overnight and steadied at $1.0907 in Asia.
China’s slowdown has the Australian and New Zealand dollars on the brink of breaking major supports. Both were down slightly in early trade, though just above overnight lows.
Brent crude futures were steady at $86.30 a barrel.
