Asia report: Markets slip as China stands pat on rates

Markets in Asia were red across the board on Thursday, as investors watched China’s central bank stand pat on its benchmark lending rate, and digested the latest minutes from the Fed stateside.

In Japan, the Nikkei 225 was 1% weaker at 22,880.62, as the yen strengthened 0.15% against the dollar to last trade at JPY 105.96.

Of the major components on the benchmark index, robotics specialist Fanuc was down 0.94%, Uniqlo owner Fast Retailing lost 1%, and technology giant SoftBank Group was 2.05% weaker.

The broader Topix index lost 0.9% by the end of trading in Tokyo, to settle at 1,599.20.

On the mainland, the Shanghai Composite was off 1.3% at 3,363,90, and the smaller, technology-centric Shenzhen Composite was down 1.24% at 2,225.73.

The People’s Bank of China confirmed during the session that it was making no changes to its benchmark rates, with the one-year loan prime rate held at 3.85%, and the five-year loan prime rate kept at 4.65%.

That sated the expectations of Reuters-polled analysts, who were not expecting any changes.

“We maintain that the People’s Bank is finished with lowering its interest rate corridor, as the authorities are broadly content with the pace of the economic recovery,” said Pantheon Macroeconomics senior Asia economist Miguel Chanco.

“This was signalled as much by the stronger-than-expected GDP print for the second quarter.”

Chanco said the tone of the bank’s rhetoric had changed in recent weeks, having called for more ‘precise’ monetary policy for the rest of the year in its biannual work report earlier in August.

“This implies that any further easing measures will be targeted mostly at areas of the economy still struggling with access to credit; i.e. small- and medium-sized enterprises.

“Crucially, market rates will continue to slide, even if without the People’s Bank forcing the issue, as banks continue to transition loans to the new loan prime rate, introduced a year ago.”

South Korea’s Kospi lost 3.66% to 2,274.22, while the Hang Seng Index in Hong Kong was 1.54% lower at 24,791.39.

Both of the blue-chip technology stocks slid in Seoul, with Samsung Electronics down 4.15%, and chipmaker SK Hynix losing 4.27%.

There were concerns around rising cases of Covid-19 in South Korea, with local new agency Yonhap reporting the seventh triple-digit daily rise in confirmed infections in a row.

Investors spent the early parts of the Asian day poring through the latest minutes from the Federal Open Market Committee in the US.

Members said that the ongoing Covid-19 pandemic could “weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.”

The Fed had kept interest rate targets on hold at its latest meeting.

“Last night’s Fed minutes showed that US policymakers were concerned about the outlook for the US economy, in the absence of further fiscal support,” said CMC Markets chief market analyst Michael Hewson.

“This less than dovish tone seemed to catch the markets unawares, prompting US markets to slide back from their new all-time highs, and put markets in Asia on the back foot as well.”

Oil prices were lower as the region went to bed, with Brent crude last down 1.06% at $44.89 per barrel, and West Texas Intermediate off 1.07% at $42.65.

In Australia, the S&P/ASX 200 weakened by 0.77% to close at 6,120.00, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was down 0.76% at 11,662.16.

Both of the down under dollars were weaker against the greenback, with the Aussie last off 0.26% at AUD 1.3960, and the Kiwi retreating 0.36% to NZD 1.5303.