Markets will be looking for hints on whether China’s economy is retrieving traction, with a week-long national holiday set to start on Friday that will be a key test for consumer spending
Asian shares dropped on Monday, dragged by China, after central banks last week reinforced the message that interest rates would stay higher for longer, while investors prepared for inflation data from the U.S. and Europe.
Chinese shares dropped after a bounce back on Friday, as property concerns and pre-holiday caution weighed. The blue chips index dropped 0.5% and Hong Kong’s Hang Seng index plunged 1.2% as Chinese property developers dipped over 3%.
S&P on Monday lowered its prediction for China’s economic growth to 4.8% this year from 5.2%, and to 4.4% in 2024 from 4.8%, saying the fiscal and monetary easing had remained limited.
Policymakers’ stress on containing leverage and financial risks has raised the bar for macro stimulus, said Louis Kuijs, Asia-Pacific chief economist at S&P.
Markets will be looking for hints on whether China’s economy is retrieving traction, with a week-long national holiday set to start on Friday that will be a key test for consumer spending.
The big test in the week ahead would be the manufacturing and services PMIs on Saturday.
Bond investors were still smarting from the U.S. Fed’s more hawkish rate projections, which caught markets by surprise. Along with the recent resilience in the U.S. economy, markets now see about a split chance that the Fed would resume increasing in December, while acutely scaling back rate cut expectations to just 65 bps in 2024.
Ten-year Treasury yields edged up 3 bps to 4.4662% on Monday, after pulling back from a 16-year high of 4.508% on Friday.
Two-year yields were little changed at 5.1162%, having dropped from a 17-year high of 5.2020% reached last week.
Much will depend on U.S. data. In a sign of declining growth, U.S. business activity was basically at a standstill in September, with the vast services sector essentially idling at the slowest pace since February.
The core Personal Consumption Expenditures Price Index is expected to show a 3.9% annual rise in August, dropping from 4.2%. Other U.S. data this week includes final Q2 GDP.