After Asian markets closed yesterday a series of economic releases in the U.S., in Europe and today in China pointed to a softer recovery, which markets chose to ignore in the past few days and instead focused on strong corporate earnings. The U.S. Census Bureau reported a more than expected 0.5% decline in U.S. June retail sales. (See RGE CI: U.S. Retail Sales: Consecutive Declines Reveal Weakening Consumer Spending). U.S. mortgage applications also fell 3%. Minutes from the Fed meetingalso showed board members increasingly concerned over the recovery. The Fed cut its forecast for the year to 3%-3.5% from 3.2%-3.5%. (See RGE CI: FOMC: Signals of Caution, Growth Estimates Revised Lower).
Adding to the pressure, a separate report showed European industrial production in May increased 0.9%, less than the 1.3% growth economists expected. And today, data released in China, showed Chinese GDP growth of 10.3%y/y in Q2, less than the 10.5% expected by economists and the 11.9% in Q1. Industrial production grew at 13.7% y/y versus expectations of 15.1% y/y. Inflation data (both PPI and CPI) came in weaker than expected. (See RGE CI: Chinese Growth Decelerates in Q2: How Much Will it Slow in 2010?).
In contrast to these lackluster releases, BoJ kept its interest rate unchanged at 0.1% and raised its view for the country’s economic growth. The Bank raised its forecast to 2.6% growth this year from 1.8%.
The MSCI Asia Pacific index fell 0.9% to 116.67 while the MSCI Asia Apex 50 declined 1.1% to 731.
In Japan, the NIKKEI 225 fell 1.1% to 9,686.Sony declined 2.5% while Nissan dropped 3.3%.
In Hong Kong, HSBC the Hang Seng index fell 1.5%.
In mainland China, stocks fell after data released indicated a sharper than anticipated slowdown in China’s Q2 growth.The Shanghai Composite dropped 1.9%.ICBC fell 1.7% while AgBank showed little gains in its first day of trading.
In India, stocks fell for a second day on concern that the central bank may hike rates at its July policy meeting amid mounting inflation pressures.The BSE Sensex 30 fell 0.2%.
In Australia, stocks fell on the weaker Chinese data and investors’ expectations of a slowdown in commodities demand by the world’s third largest economy and Australian commodities largest market. The S&P/ASX 200 fell 0.4%. BHP declined 0.7% while Rio Tinto fell 1.1%. Intoll Group, a toll road operator, jumped 30% after receiving a US$3.05 billion conditional takeover proposal from the Canada Pension Plan Investment Board.
The yen gained 0.07% against the dollar to 88.17 as investors sought relative safe assets and BoJ raised its forecast for Japan’s growth.The dollar gained against most of its counterparts in Asian trading.
The 10-year Japanese Government Bonds (JGBs) rose on increased investors risk aversion amid weaker economic growth prospects. The yield on the 10-year JGB fell 5.9 bps to 1.09%.Sovereign cash and CDS spreads across the region widened except Australian cash spread over JGBs (down 1.5 bps). Japanese CDS spread narrowed 2.1 bps.
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