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Hang Seng Bets on Stimulus after Deflation Jolt, Nikkei Falls

China fell into deflation in July, taking the wind out of investors’ sails, while worries over this week’s US inflation data also dampened the mood

A passerby walks past an electric monitor displaying various countries' stock price index outside a bank in Tokyo, Japan, March 22, 2023. REUTERS/Issei Kato
A passerby walks past an electric monitor displaying various countries' stock price index outside a bank in Tokyo, Japan, on March 22, 2023. Photo: Reuters


Asian shares were in retreat on Wednesday after China slipped into deflation last month, while investors were also distracted ahead of the release of US inflation data.

Traders were on the defensive after figures showed China consumer prices fell in July, a negative sign economic growth although it could help dampen inflationary forces globally.

Overnight, all three major Wall Street benchmarks finished lower in a broad sell-off after the downgrading of several lenders by credit rating agency Moody’s reignited fears about the health of US banks and the economy.


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Japan’s Nikkei share average snapped three consecutive sessions of gains, as heavyweights SoftBank Group and Daikin Industries slumped and caution grew ahead of the release of US inflation numbers.

The Nikkei share average fell 0.53%, or 172.96 points, to close at 32,204.33, while the broader Topix was down 0.40%, or 9.16 points, to 2,282.57.

SoftBank Group fell 3.13% after the start-up investor posted a surprise loss but said it was dipping its toes back into new investments after its Vision Fund unit returned to the black for the first time in six quarters.

China and Hong Kong stocks were mixed after it emerged consumer prices fell into deflation in July, dropping 0.3% year-on-year, its first fall in over two years and undermining investor confidence.

The Shanghai Composite Index dropped 0.49%, or 16.13 points, to 3,244.49, while the Shenzhen Composite Index on China’s second exchange lost 0.60%, or 12.25 points, to 2,038.77.

But Hong Kong traders were betting the deflation news could put more pressure on the government to consider additional fiscal stimulus.

Tech giants and mainland property developers listed in Hong Kong both fell about 0.7% but Hong Kong’s Hang Seng Index gained 0.32%, or 61.86 points, to close at 19,246.03. The Hang Seng China Enterprises Index was ahead 0.39%.

Elsewhere across the region, in earlier trade, Wellington, Mumbai and Taipei were also in the red. However, Sydney, Seoul, Manila and Jakarta edged up.

The MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.2% higher, following a 1.2% tumble a day earlier.


US Dollar Sheds Gains

European futures were up across the board, with Eurostoxx 50 futures rising 0.9% and FTSE futures 0.5%, after Italy said its new tax on banks would not amount to more than 0.1% of total assets, soothing nerves. S&P 500 futures climbed 0.1% while Nasdaq futures rose 0.2%.

Longer-term Treasury yields slipped further in Asia after solid interest for the $42 billion sale of three-year notes. Ten-year yields eased 3 basis points to 3.9981%, after falling 5 basis points overnight to as low as 3.9840%, a one-week trough.

The rates-sensitive two-year yield was down 1 basis point at 4.7450% ahead of the US inflation report on Thursday. Economists expect headline inflation picked up slightly in July to an annual 3.3% pace, while the core rate is seen unchanged at 4.8%.

The US dollar gave back some of the overnight gains at 102.39 against a basket of currencies. The risk-sensitive Australian dollar breached a key support level overnight before bouncing back to $0.6553.

Elsewhere, oil prices were marginally lower. Brent crude futures eased 0.2% to $86.00 per barrel and US West Texas Intermediate crude futures also fell 0.2% to $82.73.

The gold price was 0.3% higher at $1,930.18 per ounce.


Key figures

Tokyo – Nikkei 225 < DOWN 0.53% at 32,204.33 (close)

Hong Kong – Hang Seng Index > UP 0.32% at 19,246.03 (close)

Shanghai – Composite < DOWN 0.49% at 3,244.49 (close)

London – FTSE 100 > UP 0.76% at 7,584.76 (0933 BST)

New York – Dow < DOWN 0.45% at 35,314.49 (Tuesday close)


  • Reuters with additional editing by Sean O’Meara


Read more:

China’s Trade to the US and EU Sank Further in July, Data Shows

China’s Biggest Developer Misses Bond Payments, Shares Slump

Property, Tech Drag on Hang Seng; Dollar Boost Lifts Nikkei



Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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