Asian markets are bracing themselves for a turbulent start to the week as concerns over last week’s equity downturn persist, tightening financial conditions take hold, and investors prepare for a flurry of economic data releases from China in the coming days.
Despite the conclusion of the G20 summit in India, it appears that the market has remained relatively unaffected. Instead, attention is shifting toward the ever-present tensions between the United States and China, with Apple’s recent 6% decline, causing a $180 billion market capitalization loss, following Beijing’s decision to prohibit government employees from using iPhones at work.
Market sentiment, in general, is tenuous. Last week, the Nasdaq experienced a 2% drop, while the S&P 500, MSCI World, and MSCI Asia ex-Japan Index all saw declines exceeding 1%.
The confluence of tightening financial conditions due to elevated bond yields and a robust U.S. dollar, combined with concerns about the delayed impacts of the Federal Reserve’s interest rate hikes, creates a volatile environment, particularly during a historically turbulent month for stocks.
Goldman Sachs’s real-time indexes indicate that financial conditions in China, emerging markets, and worldwide are currently the most restrictive since last November.
The U.S. dollar has reached a six-month high, exerting pressure on Asian currencies, and traders are on heightened alert. India’s rupee recently recorded an all-time low closing figure, while the Japanese yen, Philippine peso, and Thai Baht have touched their lowest levels this year.
Currency markets will also be influenced by key economic indicators across the region this week, including Indian trade and inflation data, Australian unemployment figures, Indonesia’s retail sales statistics, and Japanese industrial production and machinery orders.
However, the spotlight will predominantly be on China’s economic data releases this week. Beijing frequently bundles the publication of critical indicators into short intervals, colloquially referred to as the ‘Chinese data dump.’ This week’s data deluge is notably extensive, encompassing money supply, loan growth, social financing (a comprehensive gauge of credit and liquidity in the economy), retail sales, industrial production, unemployment figures, house prices, and fixed asset investment—all scheduled for release by September 15.
This follows the publication of producer and consumer price inflation data on Saturday, which indicated stubbornly low inflationary pressures. Annual Producer Price Index (PPI) has now been in negative territory for the 11th consecutive month, while the annual Consumer Price Index (CPI) only rose by 0.1%, falling short of the anticipated 0.2% increase.
By the week’s end, the state of China’s economy and the challenges faced by authorities in providing the necessary monetary and fiscal stimuli to maintain the goal of 5% GDP growth for the year should become clearer. However, the precarious position of the yuan, which recently reached a 16-year low, presents additional complexity. Further easing of policies could exacerbate downward pressure on the yuan, potentially triggering a cycle of foreign exchange depreciation, weakened asset markets, and capital outflows.
