Hong Kong — Asian markets traded mixed on Friday as China stepped up monetary stimulus to revive its economy while Hong Kong suspended trading as it prepared for a major typhoon.

Mainland Chinese stocks rose after the country’s central bank cut bank reserve requirements to boost lending. The CSI 300 index climbed 0.9% while the Shanghai Composite added 0.5%.

China’s central bank lowered the reserve requirement ratio for financial institutions by 200 basis points, effective Sept. 15. The move injects liquidity into the slowing economy by freeing up dollars for banks to lend.

The easing came as a private survey showed China’s factory activity unexpectedly returned to growth in August. The Caixin manufacturing PMI rose to 51.0 in August from 49.3 in July, beating forecasts. The data suggests China’s factories may be starting to recover from COVID disruptions.

Hong Kong Shuts Down As Super Typhoon Nears

Hong Kong halted trading on Friday and closed schools as the Asian financial center braced for Typhoon Saola. The Hong Kong Observatory hoisted a №8 storm signal, its third highest warning.

“All trading sessions today [Friday] in the securities and derivatives markets, including after-hours trading session, have been canceled,” Hong Kong Exchanges & Clearing announced.

Winds were expected to strengthen through the day as the super typhoon neared Hong Kong. The observatory said it could raise storm signals to №9 or №10 between Friday evening and Saturday morning if winds intensified further.

Under bourse rules, trading is suspended if a №8 signal or higher is issued before markets open. Trading typically resumes the next day if the warning is lowered by noon.

Japan, South Korea Data Disappoints

In Japan, the Nikkei 225 closed up 0.3% while the Topix index climbed 0.8%. But data showed the country’s factory activity shrank for a third straight month in August amid weak global demand.

South Korea’s Kospi finished 0.3% higher but its manufacturing sector contracted again in August for the 14th consecutive month on sliding new orders.

In the U.S., the S&P 500 and Dow slipped 0.2% overnight while the Nasdaq closed slightly higher. Stocks posted losses in August, ending a four-month winning streak on inflation and rate hike concerns.

China Steps Up Monetary Support

Recent data has revealed economic weak spots in China as repeated COVID outbreaks and restrictions battered consumer spending and manufacturing activity.

China’s official manufacturing PMI indicated contraction in August, dropping to 49.4 from 50.3 in July on a scale where sub-50 readings signal decline. The non-manufacturing PMI plunged to 52.6 from 53.8 in July.

The world’s second-largest economy grew just 0.4% in the April-June quarter, its slowest pace since early 2020. Analysts expect third quarter GDP growth could ease further without more policy easing.

But Chinese authorities have been cautious on aggressive stimulus due to debt worries. They have relied more on targeted support like reserve ratio cuts to lower borrowing costs for businesses.

The central bank also recently cut rates on key lending facilities to stimulate housing and consumption. Local governments have stepped up infrastructure spending using special bonds.

Fed Remains Focused On Inflation Fight

Across the Pacific, the Federal Reserve remains determined to curb persistent inflation despite signs price increases are slowing.

Consumer inflation eased to 8.5% in July from a four-decade peak of 9.1% in June. But core inflation, which excludes food and energy, ticked up to 5.9% from 5.7%. This shows underlying price pressures remain entrenched.

Fed Chair Jerome Powell has stressed the central bank’s credibility is at stake in tackling inflation after a decade of missing its 2% target. He has warned restoring price stability will require tough measures.

Most Fed officials support raising rates another 50 or 75 basis points at upcoming meetings until inflation declines substantially. Markets expect rates around 4% by year-end, up from 2.25%-2.5% now.

Some economists believe rates may need to exceed 4.5% in 2023 to control inflation, increasing recession risks.

Investors are monitoring data for signs inflation and growth are cooling enough to allow the Fed to ease up on rate hikes later this year. But further stock gains may rely on clear confirmation that inflation is returning sustainably to the Fed’s 2% goal. Until then, markets could see significant swings around inflation and policy uncertainty.

Chinese Economy Feeling Strain

Recent data has revealed increasing economic strains in China as repeated COVID outbreaks and restrictions battered consumer spending and manufacturing activity.

China’s official manufacturing PMI indicated contraction in August, dropping to 49.4 from 50.3 in July on a scale where sub-50 readings signal decline. The non-manufacturing PMI plunged to 52.6 from 53.8 in July.

Retail sales grew at the slowest pace since March, up just 2.7% in July. Youth joblessness hit a record high of 20% in July.

The world’s second-largest economy grew just 0.4% in the April-June quarter, its slowest pace since early 2020. Analysts expect third quarter GDP growth could ease further without more policy support.

Real estate woes have also weighed heavily on the economy. Home prices fell for the 11th straight month in August, declining 0.28% from July, according to a private survey.

“The situation speaks to the deepening property market rout, which will continue to weigh on buyer sentiment,” said Nicole Wong, regional head of property research at CLSA. “This points to a further deterioration in market transactions.”

Fed Signals Long Battle With Inflation

Across the Pacific, the Federal Reserve remains determined to curb persistent inflation despite signs price increases are slowing.

Consumer inflation eased to 8.5% in July from a four-decade peak of 9.1% in June. But core inflation, which excludes food and energy, ticked up to 5.9% from 5.7%. This shows underlying price pressures remain entrenched.

Fed officials have signaled they are willing to tolerate some economic “pain” through slower growth and job losses in order to crush inflation and avoid a wage-price spiral.

Fed Chair Jerome Powell stressed at the central bank’s Jackson Hole symposium in August that restoring price stability will require resolute action. He said the Fed must keep rates higher “for some time” to bring inflation back to its 2% target.

Most policymakers back raising rates another 50 or 75 basis points at upcoming meetings until inflation declines substantially toward target. Markets expect rates to reach around 4% by year-end, up from 2.25%-2.5% now.

But some economists believe rates may need to top 4.5% or higher in 2023 to get inflation under control, raising recession risks. The path of rate hikes will depend on incoming data on inflation and economic growth.

For now, further stock gains may rely on clear confirmation that inflationary pressures are cooling sustainably back toward the Fed’s 2% goal. Until inflation shows decisive improvement, markets will remain highly sensitive to surprises that could alter the policy outlook.