Asian markets wavered Wednesday after data showing the first drop in Chinese consumer prices compounded worries about the world's number two economy.
The mood on trading floors was already glum after another sell-off on Wall Street fuelled by fresh concerns over the banking sector and talk of another possible Federal Reserve rate hike.
The 0.3 percent drop in China's July consumer prices was the first since the start of 2021 and comes as slowing domestic spending weighs on the country's post-Covid recovery.
Investors were already in a dour mood a day after China announced its biggest drop in exports since the beginning of the pandemic more than three years ago, while imports also tanked owing to slimming demand at home.
An extended period of disappointing indicators out of Beijing this year has ramped up pressure on authorities to provide much-needed support to the economy.
However, while leaders have made a number of pledges in recent weeks to introduce stimulus -- particularly for the property sector -- there has been very few concrete moves save for some small interest rate cuts by the People's Bank of China.
"China is in deflation, for sure, the question is for how long." Robin Xing of Morgan Stanley said on Bloomberg Television. "It's up to the policymakers how they react."
Even so, observers warn that the headline-grabbing bazooka officials have unleashed in the past is unlikely owing to the country's huge debt pile and concerns about an already weak yuan.
"These figures will amplify concerns regarding China's potential for economic growth and the efficiency of conventional measures to boost the economy," said SPI Asset Management's Stephen Innes.
"Frankly, this is not coming as much of a surprise given (Tuesday's) trade data signals, nonetheless it brings Mainland China one step closer to a Japanese-styled low inflation trap," he added, referring to Japan's decades-long battle against weak price gains and slow economic growth.
In early trade, Hong Kong and Shanghai extended the week's losses, while Tokyo, Sydney, Wellington and Taipei were also in the red. However, Seoul, Manila and Jakarta edged up.
Traders are now keenly awaiting the release of US inflation data Thursday, hoping for an idea about the Fed's plans for rates.
After announcing a hike last month, officials said they would be more data-dependent on future decisions, fanning hopes it would stop hiking.
But a mixed jobs report last week and hawkish comments from some policymakers have caused a little uncertainty among investors, dealing a blow to a market rally.
A decision by Moody's to downgrade 10 regional US banks and put another six on watch for a possible cut revived concerns about the sector after March's upheaval, dragging on sentiment.
That came after Italy announced a windfall tax on the country's lenders, battering their stock prices in a sell-off that spread to banks in France and Germany.
- Key figures around 0230 GMT -
Tokyo - Nikkei 225: DOWN 0.4 percent at 32,241.63 (break)
Hong Kong - Hang Seng Index: DOWN 0.5 percent at 19,089.45
Shanghai - Composite: DOWN 0.4 percent at 3,246.82
Euro/dollar: UP at $1.0964 from $1.0957 on Tuesday
Pound/dollar: UP at $1.2748 from $1.2745
Euro/pound: UP at 86.00 from 85.95 pence
Dollar/yen: DOWN at 143.34 yen from 143.40 yen
West Texas Intermediate: DOWN 0.2 percent at $82.79 per barrel
Brent North Sea crude: DOWN 0.1 percent at $86.07 per barrel
New York - Dow: DOWN 0.5 percent at 35,314.49 (close)
London - FTSE 100: DOWN 0.4 percent at 7,527.42 (close)
© 2023 AFP
4 Comments
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JeffersonLives
A lot of the Western Companies are pulling out of China. We are waking up to the constant threats, and unfair business rules. It will only get worse for China.
quercetum
Deflation happens when your Economy is developed and goes into stagnancy. Norway, Denmark, and Japan are nations that have seen deflation.
No nation in the history of the modern world has gone into deflation with a growth of 6.3% a quarter or 5% a year.
The highest GDP of a nation that went into deflation was 1.1% which was Japan and the lowest was -0.7% which was Norway.
A nation that grows at 6.3% or 5% means that within the economy, value is growing, and deflation means value is falling. They are diametric opposites.
Developing nations don't go through deflation. The way developing nations see deflation is by a sudden huge loss of population due to war or migration in the millions.
So whats going on is that the CPI of China fell by -0.3% from July 2022. That's all.
That is not even the definition of deflation. Deflation needs a minimum 8 Quarters or 2 Years.
This is imo a correction because 2022 had a very high base CPI due to the lockdowns. Furthermore, experts predict 2% inflation for 2023. What's happening is normal economics.
Even if China has a negative CPI every quarter, it won't be until August 2025 that you can call it deflation.
China is $19 trillion size economy and the number one GPP in the world recording 5% growth. No economy with such a performance will go into deflation.
GBR48
quote: 0.3 percent drop in China's July consumer prices.
I'd be happy with a 30% drop in prices, back to where they were pre-Brexit.
TaiwanIsNotChina
Ah, so it's just a correction, huh? Never mind that China's customers have all been out of lockdown for some time. At least you are honest that the road ahead is not good for China if deflation continues.