Asian Market Snapshot: Markets Continue to Struggle on Growth Concerns

Asians stocks were down as data continues to signal a global growth slowdown. The major U.S. indices fell yesterday as the Dow Jones Industrial Average lost 2.5% and the S&P 500 retreated 2.8%. Losses in the U.S. were prompted by comments from the Federal Reserve that the economic recovery is weaker than expected. (See RGE Critical Issue: FOMC: Recovery More Modest; MBS and Agency Repayments to Be Invested in Treasurys)

Both the MSCI Asia Pacific Index and the MSCI Asia Apex 50 fell today losing 1.8% and 1.2% respectively.

In Japan the NIKKEI 225 declined 0.9%. Investors continue to show concern regarding the strength of the yen. There is fear that the appreciation of the yen could limit the profitability of Japanese firms. Japanese Finance Minister Yoshihiko Noda said on August 11, 2010, that “Currency moves after the Fed’s decision appear a little one-sided. Excessive foreign exchange moves are bad for the economy, so I will keep closely monitoring the market.” He also hinted that the government would prefer to use BoJ easing to tackle the strong yen, rather than resorting to government intervention in the currency markets, according to UBS. (See RGE Critical Issue: Will Japan Intervene to Weaken the Yen?)

China’s Shanghai Composite Index was down 1.2% at closing. Recent data releases have indicated that the growth of China’s economy is slowing, which has led to downgrades in the outlook for the global recovery. The National Bureau of Statistics (NBS) reported that China’s fixed investment growth slowed to 24.9% y/y for the year through July 2010, down from 25.5% in H1 2010. Industrial production (value-added) eased to 13.4% y/y in July from 13.7% in June. Retail sales also slowed to 17.9% y/y growth from 18.3% y/y in June, slowing even more in real terms as consumer inflation picked up to 3.3% y/y in July from 2.9% in June. Food prices increased 6.8% y/y in July as flooding threatened the fall harvest. Meanwhile, producer prices eased significantly in July to 4.8% y/y from 6.4% in June. This, alongside weak import growth, reflected easing industrial demand as the government shuts down some capacity in heavy industry for environmental and political reasons.

While most markets struggled, India’s BSE Sensex 30 posted a gain of 0.02%. India’s industrial production increased by 7.1% in June from the same period one year earlier revealing growth that was below expectations. After industrial output increased by 11.3% in May, June yielded the smallest growth in 13 months. (See RGE Critical Issue: How Much Will Chinese Growth Slow in H2?)

In Australia the S&P/ASX 200 lost 1.2%. Although the number of employed people increased in July, Australia’s unemployment rate increased from 5.1% to 5.3% as more people joined the labor force.

On sovereign bonds, the yield on Japan’s 10-year sovereign bond fell from 1.02% to 1.01% while the yield on Australia’s 10-year sovereign bond fell from 5.05% to 5.03%.

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