Asian Stocks Eye Sluggish Start After China Data

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Asian stocks are set for a sluggish open Monday amid signs of a slowing US economy and weekend data that signalled weak demand in China.

Equity futures in Australia, Japan, Hong Kong and mainland China all point to slight losses. US contracts edged lower after the S&P 500 struggled to gain traction Friday as consumer sentiment declined to a six-month low and short-term inflation expectations picked up, posing a challenge to the outlook for Federal Reserve policy.

Asian stocks may be weighed further following the series of data releases from China. While consumer prices lifted a third month, industrial prices extended a long decline, credit shrank for the first time in April as government bond sales slowed and loan expansion was worse than expected.

“It is a concern, but there is no need to panic,” said Larry Hu, an economist at Macquarie Group. “The big miss in credit data in April is largely due to technical reasons which are transitory, rather than to a sharp deterioration in the underlying economy.”

Global stocks climbed for a third week amid strong earnings growth, particularly in AI-focused names. Meantime, benchmark 10-year US Treasuries gained a second week even after yields climbed Friday as one-year consumer inflation expectations rose to 3.5%, the highest since November. Australian yields rose in early Asian trading.

The US April inflation print on Wednesday is poised to provide the biggest test yet of this month’s rally that was sparked when Fed Chair Jerome Powell swatted away worries that the central bank may raise interest rates again. After all but erasing expectations of rate cuts this year, traders are pricing a better than even chance of a September move despite officials including Dallas Fed President Lorie Logan indicating it’s too early to think about easing policy.

“As long as the labour market remains tight, consumer resilience could continue to dampen hopes of inflation cooling off,” said Subadra Rajappa, head of US rates strategy at Societe Generale in New York. “A resumption of the disinflationary trend is imperative for the Fed to consider cutting this year.”

Key commodities including gold and oil will be in focus Monday after President Vladimir Putin replaced his long-serving defense minister in a surprise move as Russian forces seek to capitalize on a battlefield advantage and make advances in the war against Ukraine.

The move comes just days before Putin plans to visit China and NATO military chiefs meet in Brussels. Oil edged lower in early trading while gold was little changed.

Meantime, the US escalated its concern over Israel’s conduct of its Gaza offensive, warning the Jewish state risks fueling a Hamas insurgency. US Secretary of State Antony Blinken said the Biden administration still hadn’t seen a “credible” Israeli plan for shielding civilians in an assault on Rafah nor a postwar plan.

The US dollar and Swiss franc, seen as haven currencies in times of geopolitical angst, were little changed in early Asia trading.

Elsewhere this week, China delivers a policy rate decision, the Eurozone is set to report inflation and growth figures while a swath of Fed officials are due to speak including Powell. Australian jobs data is due and the nation’s government will deliver its spending plans for the year ahead. – Bloomberg

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