Asian stocks fell broadly on Tuesday, with investors focused on China, where officials announced an ambitious 5% growth target for this year along with confidence-boosting measures.
Hong Kong shares fell, while mainland stocks were little changed, in a sign that investors remain concerned about Beijing’s ability to correct an economic slowdown. Information that began leaking out early Tuesday included an urban unemployment rate of 5.5% and a 3% inflation target, along with measures to support the economy.
“Overall, it’s probably a bit more disappointing based on what’s been announced so far,” said Shen Yao Ng, investment director at Aberdeen (abrdn). “Investors still want more aggressive fiscal measures to boost the economy.”
Australian shares were steady while losses in the Nikkei 225 pushed the index back below the 40,000 level it breached on Monday. U.S. stock futures were lower in early Asian trade after the S&P 500 index fell slightly on Tuesday.
China's defense spending increases
Other measures Chinese leaders announced at annual parliamentary meetings in Beijing include a 7.2 percent increase in defense spending, the largest in five years.
China’s premier is defying convention recently by not holding a news conference for investors to learn more about the country’s political direction. That could undermine Beijing’s ability to shore up confidence in an economy grappling with a protracted property crisis and headwinds from geopolitical tensions with the United States.
“It sends a bad message that the conference is off the agenda,” said Richard MacGregor, senior fellow for East Asia at the Lowy Institute. “It has been a great platform for many prime ministers in the past to put their stamp on economic policy objectives.”
The Bloomberg Intelligence Index of Chinese property developers fell as the country’s property debt crisis showed fresh signs of trouble, with one of the country’s major state-backed developers under unprecedented investor scrutiny.
Elsewhere, the yen held steady at around 150 per dollar as Tokyo inflation rose again above the Bank of Japan’s target in February. The rise supports the central bank’s case for its first interest rate hike since 2007. Bank of Japan Governor Ueda is due to speak later on Tuesday.
Jerome Powell before Congress
Treasuries were steady in Asian trading after the yield on the 10-year note rose four basis points to 4.22% on Monday. Atlanta Federal Reserve President Raphael Bostic said he expects the Fed’s first rate cut — which he forecasts for the third quarter — to be followed by a pause at the next meeting to assess how the policy shift is impacting the economy.
Federal Reserve Chairman Jerome Powell heads to Congress for his semiannual testimony on Wednesday and Thursday, and is expected to reiterate his message that there is no rush to cut interest rates. Meanwhile, data is expected to show a slowing labor market that will boost bets on policy easing.
The latest quarterly forecast from Fed officials in December called for three-quarters of a percentage point of cuts this year, and the bond market has embraced that view, based on swap rates that signal future Fed meeting dates.
“If the S&P 500 is to make it an eighth straight week of hitting an all-time high, it will likely need encouraging words from Powell on rate cuts in his two-day congressional testimony and avoid any big surprises from the jobs data,” said Chris Larkin of Morgan Stanley’s E*Trade.
Optimism about US growth
Nouriel Roubini, an economist known for his bearish forecasts before the 2008 global financial crisis, expressed optimism that U.S. economic growth will remain robust this year, although that could be negative for stocks.
“There is actually a serious possibility of what people refer to as no-landing, where growth remains above potential and inflation remains flat,” Roubini told Bloomberg Surveillance. “Ironically, good news on growth can be bad news for the market if it means the Fed won’t cut rates as much as people expect.”
In commodities, oil prices were little changed early in the day, as was gold after hitting a near record high in the previous session. Bitcoin was trading above $68,000, heading toward its 2021 peak.
