Asian stocks experienced a decline on Thursday as China slipped into deflation. Investors are exercising caution ahead of a crucial U.S. inflation report that is expected to influence the Federal Reserve’s monetary policy. Sentiment was further dampened by the U.S. announcement of a ban on investments in sensitive technologies in China. MSCI’s broadest index of Asia-Pacific shares outside Japan fell by 0.33%, setting it up for a second consecutive week of losses. China’s CSI 300 Index and Shanghai Composite Index opened 0.1% lower, while Hong Kong’s Hang Seng Index retreated by 0.6%. Conversely, Japan’s Nikkei was up by 0.13%.
Chinese data released on Wednesday revealed deflation at the consumer-price level and further declines for factory-gate prices in July, raising concerns about the country’s post-pandemic recovery. This marks the first time since Japan in August 2021 that a G20 economy has reported a year-on-year decline in consumer prices. Analysts believe that Beijing may need to provide more fiscal support to avoid a deflationary trap.
On Wednesday, President Joe Biden signed an executive order that restricts new U.S. investments in China’s sensitive technologies and mandates government notification in other tech sectors. This move signifies the introduction of unprecedented federal oversight to scrutinize and impede investments in China’s tech sector.
Investors have been reluctant to make significant moves ahead of the U.S. inflation report scheduled for release on Thursday. The forecast predicts a slight increase in headline inflation to an annual 3.3% in July, while the core rate, which excludes volatile food and energy segments, is expected to rise by 0.2% for an annual gain of 4.8%. Market expectations suggest that there is a over 50% chance that the Federal Reserve will not proceed with interest rate hikes this year due to moderating inflation and the potential for a soft landing.
In the currency market, the dollar index, measuring the U.S. currency against six peers, remained relatively stable at 102.52. The euro declined by 0.04% to $1.0969, the Japanese yen weakened by 0.04% to 143.80 per dollar, and sterling was at $1.2714, down by 0.03%.
Although oil prices reached seven-month highs in the previous session, they eased in Asian trade due to concerns about the Chinese economy outweighing the positive impact of U.S. fuel stockpile drawdowns and Saudi and Russian output cuts. U.S. crude fell by 0.07% to $84.34 per barrel, and Brent was at $87.48, down by 0.08% for the day.
In the precious metals market, spot gold rose by 0.2% to $1,917.74 an ounce.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.