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US Inflation Soars again, Asian Stocks Open Miserably

Asia-Pacific exchanges opened in the red zone in trading Friday (13/10/2023), ahead of the release of China’s inflation and trade balance data for the September 2023 period.

As of 08:30 WIB, Japan’s Nikkei 225 index was down 0.14%, Hong Kong’s Hang Seng was down 1.6%, China’s Shanghai Composite was down 0.51%, Singapore’s Straits Times was down 0.78%, Australia’s ASX 200 was down 0 .2%, and South Korea’s KOSPI depreciated 0.68%.

From China, inflation and trade balance data for the September period will be released today. Market players in the Trading Economics consensus expect China’s inflation to rise 0.3% annually ( year-on-year / yoy) and grow 0.4% monthly ( month-to-month / mtm).

For the record, China’s inflation reached 0.1% (yoy) and 0.3% (mtm) in August 2023, China recorded deflation in July 2023 (yoy) which shocked the world.

On a monthly basis, China experienced deflation from February to June 2023. Deflation was caused by the slow recovery of China’s economy after the lockdown to overcome the spread of the Covid-19 virus.

Not only inflation data, China will also release trade balance data for the period September 2023 today.

China’s exports and imports are predicted to experience slight improvement in September, based on a Reuters market survey , adding to a series of recent data showing the world’s second largest economy is starting to stabilize, although the data is predicted to still contract.

China’s exports are estimated to contract 7.6%, better than the previous period, namely last August, which contracted 8.8%. Meanwhile, China’s imports are also predicted to improve slightly, contracting 6% last month, from the previous contraction of 7.3% in August.

Even so, China is still facing a property crisis which supports the economy. There are several giant property companies that are threatened with bankruptcy due to this problem, such as Evergrande and Country Garden.

This Bamboo Curtain country has provided stimulus by cutting the banking reserve ratio by 25 basis points (bp) to 7.4%. Cutting the banking reserve ratio is estimated to release up to US$ 69 billion in additional bank liquidity.

On the other hand, the Asia-Pacific stock exchange tends to weaken following the movement of the United States (US) stock exchange, Wall Street yesterday, which also closed corrected after the release of consumer inflation data.

The Dow Jones Industrial Average (DJIA) index closed down 0.51%, the S&P 500 corrected 0.62%, and the Nasdaq Composite depreciated 0.63%.

The yield on US government bonds (US Treasury) jumped again after consumer inflation data ( consumer price index /CPI) came out on Thursday evening Indonesian time.

The 10-year Treasury yield , which is the benchmark for the US Treasury, rose almost 16 bp to 4.932%. The 10-year Treasury yield recently traded at a 16-year high that rocked the stock market. Earlier this month, the 10-year Treasury yield was trading above 4.8%.

Some investors believe that higher yields will persist, influencing Thursday’s decline in equity markets.

“Every (Inflation) number that comes out shows more stickiness which takes away the belief that we will eventually reach 2% inflation. We will not reach 2% inflation, but the bond market still believes that we will reach it or get close to it,” said Phillip Colmar , Managing Partner and global strategist at MRB Partners, quoted from CNBC International .

Previously, the US CPI for the September 2023 period, which was released last Thursday, increased by 3.7% (yoy) and 0.4% (mtm). This increase was higher than the Dow Jones consensus of 3.6% (yoy) and 0.3% (mtm), respectively.

Monthly inflation shows a decline, but on an annual basis there is no change, which is a concern that it will be difficult to achieve the 2% inflation target.

Additionally, the ongoing Israel-Hamas War has raised questions regarding a potential oil supply crisis and fuel price increases if geopolitical instability spreads to oil-producing countries in the region.

Source : CNBC