Asia Stocks Extend Decline as China's Troubles Persist, Dollar's Slide Eases

Asian stocks experienced a decline on Tuesday as concerns over weak Chinese economic data from the previous day continued to dampen investor sentiment. Additionally, market participants were eagerly awaiting the release of US retail sales data, hoping for insights into the future path of US interest rates.

During the morning session, MSCI's broadest index of Asia-Pacific shares outside Japan slipped by 0.63%.

Investors were particularly interested in observing signs of inflation cooling, with a close watch on the forthcoming US retail sales and industrial production readings, scheduled for release later that day.

Economists were projecting that retail sales in June would show a 0.5% rise compared to May.

Gary Ng, a senior economist at Natixis Corporate and Investment Bank, remarked that the market was still grappling with the balance between economic growth and inflation. He believed that the US economic data coming in that week would provide a clearer indication of the need for further rate hikes.

Meanwhile, the US Federal Reserve, European Central Bank, and Bank of Japan were preparing for policy reviews in the following week.

Following the suspension of trading on Monday due to a typhoon, Hong Kong stocks were impacted by the decline in Chinese stocks prompted by data indicating that China's post-pandemic economic rebound had slowed, with second-quarter growth at 0.8% on a quarterly basis.

Asian investors were facing challenges in finding optimism following the release of "very poor Chinese economic data," as described by Ng.

The benchmark Hang Seng index experienced a 1.74% drop, with the technology sector falling by 1.89%. China A shares were also down 0.4% during the early session on Tuesday.

However, Japan's Nikkei managed to record a slight gain of 0.18%. The recent divergence in rate hike expectations between the US Federal Reserve and the European Central Bank was contributing to the weakening of the dollar.

Markets had largely priced in a 25-basis-point rate hike from the Fed at its upcoming policy meeting later that month, with further expectations of rate reductions as early as December.

Conversely, investors anticipated that the European Central Bank and the Bank of England would extend their rate-hike cycles.

The Bank of Japan (BOJ) was holding its monetary policy meeting the following week, and investors were keen to know whether it would begin to phase out its ultra-dovish policy stance.

The US dollar index dipped slightly to 99.85 in early Asia trade, reaching its lowest level since April 2022 on the previous Friday.

The euro managed to strengthen by 0.11% to $1.1246.

Benchmark 10-year notes remained flat, yielding 3.7989%. US crude oil rose by 0.22% to $74.31 per barrel, and Brent crude was at $78.64, up by 0.18%. Spot gold added 0.1% to $1,957.50 an ounce.

Furthermore, US gold futures showed an increase of 0.26% at $1,960.19 an ounce.