Things to watch: RBA minutes, China stocks struggle

© Reuters.

Reserve Bank of Australia's Balancing Act on Interest Rates

The Reserve Bank found itself in a tight spot during its last interest rate decision, with Tuesday's minutes from the board meeting set to shed light on just how close it was.

Last month saw the Reserve Bank Board choose to maintain interest rates at 4.1%. This pause came after an inflation-induced surge led to a series of hikes amounting to 400 basis points since May of the previous year.

Tuesday is expected to bring forth these revealing minutes, which are likely to highlight a tough choice between another hike of 25 basis points and maintaining status quo as we near the end of RBA's cycle of increases.

However, there might not be much more insight offered by this document than what Governor Philip Lowe has already shared in his speech last week regarding July’s decision.

A consensus among economists suggests that Lowe appeared less adamant about further hikes in his address, although additional tightening hasn't been completely dismissed yet.

Ahead of their August verdict, fresh data concerning labor market conditions and quarterly inflation figures will be crucial for the central bank’s assessment.

The board will be keenly observing any convincing signs indicating a decrease in inflation following its annual growth rate hitting 7% during the March quarter.

Any indication towards easing labor market conditions would also serve as encouraging news for RBA; it would imply that their strategy involving interest rate hikes is successfully curbing demand and slowing down economic activity – exactly as planned.

Interestingly enough, unemployment rates actually dipped slightly - from April’s 3.7% down to May’s figure standing at 3.6%.

China's Gloomy Economic Forecast Sends Ripples Through Asian Markets

Despite a bullish session on Wall Street overnight, market participants remain pessimistic about Chinese markets, potentially setting up the Asian-Pacific for another challenging Tuesday.

China, the world’s second-largest economy, revealed a rather tepid growth rate in Q2 while global property giant China Evergrande Group (HK:3333) reported staggering losses of $81 billion across 2021 and 2022.

Following these announcements, Chinese stocks plummeted nearly 1% on Monday—marking their most significant drop in three weeks—and dragged the broader MSCI Asia ex-Japan index into negative territory after six positive sessions.

In contrast to these struggles abroad, American tech shares enjoyed an almost 1% boost on Wall Street as investors gear up for a key week of earnings reports. Meanwhile, there were minimal fluctuations in U.S. dollar values or Treasury yields ahead of Tuesday's retail sales data reveal.

The impact of China’s underwhelming second-quarter GDP figures is expected to linger over local market performance going into Tuesday and will likely intensify calls for Beijing policymakers to implement further stimulus measures aimed at bolstering economic activity.

Despite exceeding predictions with a quarterly growth rate of 0.8%, China’s year-on-year GDP expansion fell short at just 6.3%—a full percentage point below anticipated rates.

Major banks including JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C) have consequently revised China's projected growth downwardly for 2023 – now set as low as 5%. Moreover, Morgan Stanley has also reduced its forecast for the country’s GDP by forty basis points down to just 4.5% heading into 2024.

Evergrande Group finds itself amidst increasingly turbulent waters due not only to recent financial loss but also rising total liabilities—a situation that offers no simple solution amid decreasing growth momentum. Once a vibrant engine driving both investment and economic progress overall; real estate is now slowing down the nation's economy significantly.

Consequently, the Chinese mainland real estate index dropped to its lowest level seen over nine years on Monday—it has lost half its value within merely three years’ time period

U.S Treasury Secretary Janet Yellen expressed her concerns that slower Chinese growth could impact other economies globally although she remains confident about U.S.' ability to avoid recession.