Asian Stock Market: China, hawkish Fed bets test cautious optimism

• Asian equities trade mixed amid softer yields, light calendar.
• Market’s pricing of a 75 bps Fed rate hike in September grew to 72.5%.
• Fresh covid woes in China, fears for Beijing’s banks and Sino-American tussles weigh on sentiment.
• Yields consolidate recent gains around monthly highs ahead of the key US data.

Markets in the Asia-Pacific region fail to portray a clear direction as China joins the hawkish Fed expectations to challenge the bulls amid a quiet session on Tuesday. Also keeping the traders on their toes is a cautious mood ahead of Friday’s US jobs report.

That said, MSCI’s index of the Asia-Pacific shares outside Japan drops 0.70% intraday whereas Japan’s Nikkei 225 adds 1.20% intraday by the press time. Further, stocks in Australia and New Zealand are also positive even as China’s key equity benchmarks drop between 0.50% and 0.70%, not to forget the 0.80% intraday loss of Hang Sang, at the latest.

On a broader front, the US 10-year Treasury yields retreat to 3.09% following the two-day uptrend to refresh the monthly high whereas the S&P 500 Futures struggles between gains and losses after the downbeat performance of Wall Street.

Politico came out with the news suggesting the Biden administration to ask congress to approve a $1.1 billion arms sale to Taiwan, which in turn appears to have triggered the latest run-up. Before that, the movement of the US vessels in the Taiwan Strait and American diplomats’ visits to Taipei teased China. On the same line were concerns raised by Financial Times (FT), over the mounting pressure on Chinese banks. “Chinese residential property owners are rushing to pay off their mortgages early, heaping pressure on commercial banks that were already struggling to identify attractive lending opportunities,” said the news.

Elsewhere, China's southern city of Shenzhen shut the world's largest electronics market of Huaqiangbei and suspended service at 24 subway stations on Monday in a bid to curb a COVID-19 outbreak.

It should be noted that the CME’s FedWatch Tool signals a 72.5% chance of the Fed’s 75 basis points (bps) rate hike in September.

Given the recently hawkish Fedspeak at the Jackson Hole Symposium, coupled with the fears of the economic slowdown and softer employment figures, Friday’s US job numbers will be crucial for investors.