China state-owned daily urges calm after market rout
A Chinese state-owned securities newspaper urged calm on Wednesday after investors dumped mainland shares for a second day on worries over the impact of tighter government regulations.
Regulatory moves aimed at the education, property and technology sectors sparked heavy selling this week in Chinese markets, and have left global investors bruised and uncertain over the outlook for investments in Chinese firms.
In a front page commentary on Wednesday, the state-owned Securities Times said that systemic risks “do not exist in the A-share market overall.”
“The macroeconomy is still in a steady rebound stage, and short-term fluctuations do not change the long-term positive outlook for A-shares,” the commentary said.
“The recent market decline to some extent reflects misinterpretation of policies and a venting of emotion. Economic fundamentals have not changed and the market will stabilise at any moment.”
Other major securities dailies echoed the commentary in market reports.
In a front page story citing domestic fund managers, the official China Securities Journal said the sell-off was a “structural adjustment”, a sustained plunge is unlikely and the market does not face systemic risk.
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Australian CPI blows hot in Q2, core inflation far cooler
Australia’s consumer prices rose at the fastest annual pace in almost 13 years last quarter as petrol jumped and government subsidies unwound, but a far tamer reading for core inflation suggested the spike would be fleeting.
Indeed, the run-up has already been overtaken by events as coronavirus lockdowns in major population centers will almost certainly send the economy backwards this quarter, a powerful argument for extended monetary and fiscal stimulus.
“The heightened risk posed by the delta variant will result in the economy contracting sharply in the September quarter,” said Sarah Hunter, chief Australia economist for BIS Oxford Economics. “Against this backdrop core inflation is likely to remain subdued.”
Wednesday’s data from the Australian Bureau of Statistics showed the headline consumer price index (CPI) rose 0.8% in the June quarter, from the previous quarter, just topping market forecasts of a 0.7% increase.
Petrol was the biggest contributor, followed by health care, fresh food and motor vehicles, where strong demand and supply bottlenecks have pushed up prices.
The CPI climbed a sharp 3.8% on a year ago, but largely because the index had been artificially depressed last year by lockdown relief measures notably on child care payments.
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WORLDWIDE: FINANCE / MARKETS
Asian shares sit at 2021 lows ahead of Fed verdict
Asian shares stayed stuck at seven-month lows on Wednesday, as markets continued to digest a storm in Chinese equity markets, while the dollar rested with traders reluctant to place large bets ahead of the outcome of the Federal Reserve meeting.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dropped 0.35% in early trading, having fallen in each of the three previous sessions as regulatory crackdowns in China roiled stocks in the technology, property and education sectors, leaving international investors bruised.
Japan’s Nikkei (.N225) slid 1.01%, Chinese bluechips (.CSI300) dropped 1.51%, and Australian shares(.AXJO) fell 0.43%. Hong Kong (.HSI) bucked the trend, rising 0.63%, after closing at its lowest level since November the day before.
“China and the Fed are the two key things for today,” said Tai Hui, chief market strategist for Asia Pacific, at JPMorgan Asset Management.
Major questions were whether markets would stabilise as they processed the news out of China and whether the spread of the Delta variant posed a risk to growth in the United States and Europe, he added.
“We are still trying to digest the news from China, what’s going to be new is how the Fed view the latest round of (COVID-19) infections and whether they need to readjust their view,” he said.
The statement from the Fed policy meeting, and a press conference from chairman Jerome Powell are due at 2 p.m. EDT (1800 GMT).
Markets will be watching closely for any hints in relation to inflation, economic growth, interest rates and when the Fed will likely start reducing its purchases of government bonds.
The declines in Asian equities on Tuesday spread to other markets overnight, causing Wall Street to retreat a little from the record highs set earlier in the week.
The Dow Jones Industrial Average (.DJI) ended Tuesday down 0.2%, the S&P 500 (.SPX) shed 0.5% and the Nasdaq Composite (.IXIC) slid 1.2%. Earlier the pan-European STOXX 600 index (.STOXX) finished 0.54% lower.
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Oil rises on US fuel drawdowns despite surging coronavirus cases
Oil prices climbed on Wednesday after industry data showed US crude and product inventories fell more sharply than expected last week, reinforcing expectations that demand will outstrip supply growth even amid a surge in COVID-19 cases.
U.S. West Texas Intermediate (WTI) crude futures rose 43 cents, or 0.6%, to $72.08 a barrel at 0119 GMT, reversing Tuesday’s 0.4% decline.
Brent crude futures rose 38 cents, or 0.5%, to $74.86 a barrel, after shedding 2 cents on Tuesday in the first decline in six days.
Data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 4.7 million barrels for the week ended July 23, gasoline inventories dropped by 6.2 million barrels and distillate stocks were down 1.9 million barrels, according to two market sources, who spoke on condition of anonymity.
That compared with analysts’ expectations for a 2.9 million fall in crude stocks, following a surprise rise in crude inventories the previous week in what was the first increase since May.
Traders are awaiting data from the U.S. Energy Information Administration (EIA) on Wednesday to confirm the drop in stocks.
“Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resumed their declining trend,” OANDA analyst Edward Moya said in a research note.
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China jitters lift haven currencies; dollar awaits Fed
The dollar was pinned below recent highs on Wednesday by a decline in real yields and by trepidation ahead of a Federal Reserve meeting, while other safe-haven currencies were in favour following an unnerving plunge in Chinese equity markets.
The Japanese yen rose about 0.5% on the dollar overnight to touch a one-week high, while the Swiss franc and euro also rose a little. Each held on to their gains at the beginning of the Asia session, with the yen last trading at 109.85 per dollar and the euro at $1.1819.
The Chinese yuan teetered near a three-month low at 6.5180 per dollar after logging its worst day since October on Tuesday, while the risk-sensitive Australian and New Zealand dollars also nursed losses as sentiment took a hit.
Hong Kong’s Hang Seng Index (.HSI) suffered its sharpest selloff in more than a year on Tuesday amid growing fears about a Chinese government crackdown on tech and other sectors and jitters spilled over into U.S. markets.
“The fall in Chinese markets caused a ripple effect to global sentiment and it was a risk-off session,” said Westpac strategist Imre Speizer.
The gains by the yen, euro and franc combined to push the U.S. dollar index lower and it sat at 92.472 on Wednesday. Declining U.S. real yields, which hit another record low at the 10-year tenor overnight also cast a pall over the dollar and the global economic outlook.
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