Asian shares faced a downturn on Monday, largely influenced by central banks’ indications of prolonged interest rate hikes. The backdrop of concerns surrounding China’s property market and the anticipation of inflation data from the U.S. and Europe contributed to a cautious market environment.

Central banks’ recent communication emphasizing extended periods of elevated interest rates had a significant impact on Asian markets. Investors grew wary as they digested the implications of prolonged monetary tightening.

Chinese shares faced a setback following a brief rebound on the previous trading day. Concerns related to the property market and pre-holiday caution led to a decline in Chinese shares. The blue-chip index experienced a 0.5% dip, while Hong Kong’s Hang Seng index slumped by 1.2%. The troubled property developer Evergrande reported difficulties issuing new debt due to an ongoing investigation into its subsidiary, Hengda Real Estate Group Co Ltd.

S&P Global Ratings adjusted its forecast for China’s economic growth, citing a reduced estimate of 4.8% in 2023 and 4.4% in 2024. The agency highlighted the limited fiscal and monetary easing as factors contributing to the adjustment. Policymakers’ focus on managing leverage and financial risks has raised the bar for significant macroeconomic stimulus, explained Louis Kuijs, Asia-Pacific chief economist.

The upcoming week holds crucial economic indicators that will offer insights into China’s economic trajectory. As a week-long national holiday approaches, consumer spending during this period will be a critical indicator. Additionally, manufacturing and services Purchasing Managers’ Index (PMI) data, scheduled for Saturday release, will provide valuable information on the health of China’s economy.

• Impact on Bond Markets

The impact of the U.S. Federal Reserve’s unexpectedly hawkish rate projections continues to reverberate through bond markets. Investors have adjusted their expectations, with markets now foreseeing a roughly equal probability of the Fed resuming rate hikes in December. Furthermore, rate cut expectations for next year have been significantly reduced to 65 basis points.

• U.S. Data and Inflation Outlook

The week ahead will heavily depend on U.S. economic data. Signs of slowing growth have emerged, with U.S. business activity remaining stagnant in September. Inflation data, particularly the core Personal Consumption Expenditures Price Index, is expected to show a 3.9% annual increase in August, slightly easing from the previous 4.2%. Other notable U.S. data includes the final Q2 GDP figures.

• European Inflation Figures

Euro zone preliminary inflation figures for September, expected to decline to 4.5% annually from August’s 5.2%, will be closely watched. Market expectations suggest that the European Central Bank has concluded its rate-hiking cycle.

• Currency and Commodity Markets

The U.S. dollar continues to strengthen, extending its gains from the previous week. The yen remains jittery, hovering around 148.37 per dollar after touching a fresh 10-month low.

 

Oil prices resumed their ascent, with Brent crude futures rising to $93.79 per barrel. U.S. West Texas Intermediate crude futures also saw gains, reaching $90.44.

 

Gold experienced a minor decline, down 0.1% to $1,922.76 per ounce.

 

The economic landscape remains marked by central bank actions, inflation concerns, and ongoing market volatility, leaving investors vigilant in the weeks ahead.