By Laura He and Michael Kitchen, MarketWatch
HONG KONG (MarketWatch) -- Asian stocks ended mixed on Tuesday,
with Hong Kong shares rising to a five-month high after a reading
of Chinese inflation came in roughly as expected, and as the
central bank cut reserve ratio for selected banks.
Japan's Nikkei Average retreated 0.9% to its lowest close in a
week, as the yen (USDJPY) rose against the dollar to Yen102.331
from Yen102.510 in the previous session. The broader Topix index
also dropped, by 0.5%.
However, Hong Kong's Hang Seng Index advanced 0.9%, bolstered by
banking stocks, after the People's Bank of China offered details
about its previously announced plan to cut the reserve requirement
ratio for selected banks. The ratio would go down half a percentage
point for banks which lend to micro-and small-sized enterprises and
rural sectors, with the cut effective on June 16, according to the
central bank's website on Monday evening.
On Tuesday, China released its consumer-price index, which rose
2.5% in May from a year ago, broadly in line with market
estimates.
On the mainland, the Shanghai Composite Index rallied 1.1%,
posting its biggest daily gain in about a month.
In Australia, the S&P/ASX 200 also inched up 0.1%, with the
Aussie (AUDUSD) higher versus the dollar, buying 93.59 U.S. cents
from 93.43 cents in the prior session.
Hong Kong market heavyweight China Mobile gained 1.1%, after the
state-owned telecoms giant said late Monday that it's buying an 18%
stake in Thai peer True Corp. for $882 million.
Mainland banks were also well bid, with Agricultural Bank of
China gaining 1.7%, and both ICBC and Bank of Communications rising
1.2%.
However, casino stocks sold off, as Melco Crown Entertainment
tumbled 5.3%, and SJM Holdings fell 5.2%.
In Japan, semiconductor manufacturer Renesas Electronics Corp.
declined 3.3%, electronics maker Sharp Corp. lost 2.3%, and
Internet conglomerate SoftBank traded lower by 1.9%. Auto maker
Mazda Motor moved down 1.3%, and bigger rival Toyota Motor was off
1.2%.
China data: Prices do as expected
Chinese prices for May, both consumer and producer, have more or
less matched economists' average forecast, with reaction to the
numbers mostly positive.
The consumer-price index was 2.5% higher in May than it was a
year earlier, marking a 0.1% gain from the previous month after
registering slight month-on-month losses in March and April.
The result was smack in line with the median forecast from a Dow
Jones Newswires survey of analysts and just above Bloomberg's
projected increase of 2.4%.
Over on the wholesale side, the producer price index fell 1.4%
from its year-ago level -- slipping 0.1% on a monthly basis after a
0.2% drop in April.
This too offered little surprise, barely trailing the 1.5%
deflation tipped by both Dow Jones and Bloomberg.
Economists mostly (but not entirely) found comfort in the data,
with most (but not all) saying prices wouldn't likely be a problem
for the economy this year.
Bank of America-Merrill Lynch sees the consumer price result as
something of a Goldilocks number, allaying earlier concerns that
retail prices could follow their wholesale brethren into
deflationary territory, but also not so high as to prevent further
monetary easing.
"We believe that the threat of deflation in China is quite
small, and the rise of CPI inflation to 2.5%, which is still far
below the 3.5% government target, won't impact the scale and pace
of the ongoing mini-stimulus," the Merrill Lynch economists
write.
J.P. Morgan Chase agreed, saying "the inflation trend going
ahead will be largely stable" and that it remains "almost for sure"
that the consumer inflation rate will stay firmly below that 3.5%
target.
Over at Capital Economics, China economist Julian
Evans-Pritchard looks at May's 5.6% jump in pork prices and sees
more support for prices ahead, thanks to the other white meat.
"Falling pig stocks since the start of the year point to further
increases in pork prices, which may push headline inflation higher.
That said, we don't expect inflation to get out of hand this year,"
in part because the central bank has "avoided the type of
across-the-board monetary loosening that would be likely to stoke
broader price pressures," Evans-Pritchard writes.
On the other hand, PNC Financial Services Group's senior
international economist Bill Adams takes a dimmer view of the data,
particularly in terms of what the lingering producer-price
deflation says about the broader economy.
"There are two important market signals for the Chinese economy
out of this report," Adams says. "The first is from the PPI report:
Industrial overcapacity is a genuine problem, although some of the
year-ago decline in prices reflects pass-through of global declines
in energy prices in the first half of 2014."
"The second signal is from the CPI report: There is negligible
slack in the Chinese labor market, reflected in rapidly rising
costs of labor-intensive services -- laborers are able to wield
pricing power in wage negotiations," according to Adams.
(Some material in this report is from MarketWatch's Asia Stocks
blog.)
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