Asian Market Snapshot: Equities Fall as Weakening Condition of U.S. Economy Causes Concern

Most Asian markets experienced declines on the day as investor sentiment was hampered by concern over the U.S. economy. U.S. stocks finished lower on Tuesday after the U.S. Bureau of Labor Statistics reported a 0.9% q/q in labor productivity in Q2 2010. (See RGE Critical Issue: U.S. Productivity Growth Falls Back After Five Consecutive Gains) Also, at the August 2010 Federal Open Market Committee (FOMC) meeting, the Fed noted that “the pace of the recovery is likely to be more modest in the near-term than had been anticipated” (See RGE Critical Issue: FOMC: Recovery More Modest; MBS and Agency Repayments to Be Invested in Treasurys)Both the MSCI Asia Pacific Index and the MSCI Asia Apex 50 decreased on the day losing 1.0% and 1.3% respectively.

In Japan the NIKKEI 225 struggled as it plummeted 2.7%. Each of the ten sectors fell led by industrials (down 3.3%) and basic materials (down 3.1%). Japanese stocks led the fall in Asia after the Cabinet Office reported 1.6% m/m increase in machinery orders for the month of June; the reported number was well below the Bloomberg survey’s median economist forecast of 5.4%. Machinery orders signal trends in business investment.

Hong Kong’s Hang Seng Index was down 0.8% at the close. Five of the nine sectors posted losses including technology (down 3.8%) and basic materials (down 2.6%). Bank stocks decreased after regulators in China required the firms to include off-balance-sheet liabilities on their books in addition to forcing an increase in provisions for potential defaults.

China was a bright spot in the region as Chinese stocks gained on the day. The Shanghai Composite rose 0.5%. The statistics bureau reported that industrial production increased by 13.4% in July from the same period one year earlier. Also inflation increased to 3.3% in July from 2.9% in June. China International Capital Corp. has stated that the inflation rate will gradually decrease due to a slowing economy and the stabilization of commodity prices. (See RGE Critical Issue: How Much Will Chinese Growth Slow in 2010?)

In South Korea the KRX 100 declined 1.2% today.

In Australia consumer confidence has reached its highest level since the first month of the year. The sentiment index jumped 5.4% to 119.2 points this month. However increases in consumer confidence did not prevent the S&P/ASX 200 from falling 1.9% to 4,456. 

Several of the region’s major currencies weakened against the dollar. The rupee and rupiah both lost 0.04% against the dollar while the Aussie dollar and kiwi weakened by 0.23% and 0.54% respectively. The yen strengthened gaining 0.01% against the dollar.

The yields on 10-year sovereign bonds decreased in Japan, Australia, New Zealand and Hong Kong. The yield on Indonesia’s 10-year sovereign bonds increased by 0.6 basis points.

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