Asian stock markets fell on Monday, led by a sharp drop in Chinese shares, as newly released data showed a deceleration in industrial profit growth in the world’s second largest economy last month. The lackluster numbers dampened investor optimism despite record holiday sales in the United States over the long Thanksgiving weekend.
The Hang Seng China Enterprises Index, which tracks major mainland Chinese firms listed in Hong Kong, declined 1.4% amid a broader pullback across the region. Locally listed Chinese equities also stumbled, with the benchmark CSI 300 Index shedding 1.3% in Shanghai and Shenzhen.
The selling pressure reflected heightening concerns that China’s economic recovery may be losing steam. Profits for the country’s industrial sector rose just 2.7% in October compared to the same month last year, down sharply from 11.9% growth registered in September, according to China’s National Bureau of Statistics (NBS).
Multiple analysts warned the weak momentum could prompt companies to delay major investments or hiring plans, jeopardizing China’s rebound from widespread pandemic lockdowns in early 2020.
“The anemic profit numbers are the latest sign confirming that current recovery momentum remains fragile,” said Dong Chen, head of Asia macro research at Pictet Wealth Management, in remarks to Bloomberg Television. “There’s still a long way to go before China is out of the woods economically.”
Yuan Drops, Short Term Rates Climb on Tight Liquidity
In currency markets, China’s yuan dipped 0.1% versus the U.S. dollar. Short-term interbank lending rates also vaulted higher, with Hong Kong’s one-month HIBOR reaching its loftiest level since 2007 amid tight liquidity headed into year-end.
The lackluster economic signals out of China contrasted with buoyant Thanksgiving holiday sales numbers in the United States. Online spending topped $9 billion on Black Friday itself even with U.S. inflation hovering near 40-year highs, according to industry data.
Still, U.S. equity index futures edged cautiously lower early Monday as investors awaited new clues on the health of the American consumer. The Conference Board’s monthly U.S. consumer confidence index is slated for release Tuesday, while personal consumption expenditures figures on tap later this week should shed light on stubborn inflationary pressures.
Benchmark Treasury Yields Reach One-Week Peak
In fixed income markets, benchmark U.S. 10-year Treasury note yields extended their recent upward march to touch 4.51% early Monday, reaching the highest level in over a week.
Market expectations for an eventual peak in Federal Reserve interest rates also climbed. Fed funds futures now indicate a 77% probability that the U.S. central bank will lift its policy rate to a range of 5% to 5.25% by May 2023 before cutting, up from 72% a week ago.
The U.S. dollar, however, traded mixed against its major peers. The Bloomberg Dollar Spot Index dipped 0.5% last week even after the Fed lifted borrowing costs by another 75 basis points earlier this month to a target range of 3.75% to 4%.
Strategists at Commonwealth Bank of Australia said Monday the greenback may see additional “heavy” trading this week as fund managers adjust currency hedges. Ongoing optimism for a soft economic landing in the United States could also drive more investment flows into emerging markets, they noted.
Crude Prices Decline Amid Demand Uncertainty
Oil prices moved slightly lower as traders looked ahead to a key OPEC+ meeting later this week where major producing countries are expected to finalize 2023 production quotas. Prices had surged last week after Russia indicated it may be amendable to output cuts.
U.S. West Texas Intermediate crude futures were down 0.8% early Monday to trade near $74.95 per barrel.
While gasoline prices have fallen from summer peaks, they remain elevated enough to constrain holiday shopping budgets for many consumers. Investors will parse Black Friday and Cyber Monday sales figures for early reads on how persistently high inflation may be impacting household spending power.
Conclusion
Asian equity markets stumbled Monday, led by sharp declines in Hong Kong and mainland Chinese shares, following data showing industrial profit growth in China softened last month. The lackluster numbers rekindled worries around the health of the Chinese economy and reverberated across the region despite record holiday retail sales in the United States. Lingering growth questions in the world’s number two economy look set to dominate investor focus in the week ahead.
