Asia suffers China blues; dollar hits 2023 top on yen

Asian shares struggled on Monday ahead of China data that is likely to amplify the case for serious stimulus even as Beijing seems deaf to the calls, while rising Treasury yields lifted the dollar to a 2023 peak on the embattled yen.

Geopolitics was an added worry after a Russian warship on Sunday fired warning shots at a cargo ship in the southwestern Black Sea, heralding a new stage of the war that could impact on oil and food prices.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) eased another 1.1 per cent, after shedding 2 per cent last week. Japan's Nikkei (.N225) was off 0.5 per cent, even as exporters drew support from the weak yen.

Chinese blue chips (.CSi300) lost 1.1 per cent, on top of a 3.4 per cent decline last week, amid a string of disappointing economic news culminating in a dire report on new bank loans in July.

Figures on retail sales and industrial output are due Tuesday and analysts assume they will underwhelm, keeping downward pressure on the yuan.

Adding to concerns about the deteriorating health of the country's debt-laden property developers was news two Chinese listed companies had not received payment on maturing investment products from Zhongrong International Trust Co.

China's Country Garden (2007.HK), the country's top private property developer, is also set to suspend trading of its 11 onshore bonds from Monday.

The sour mood saw S&P 500 futures and Nasdaq futures shed early gains to each ease 0.1 per cent.

That followed losses on Friday when surprisingly high readings on US producer prices tested market optimism that inflation would cool enough to avoid further rate hikes.

CONSUMERS KEEP CONSUMING

Figures on US retail sales this week are forecast to show a 0.4 per cent pick up in spending, with risks on the high side thanks in part to Amazon's Prime Day.

Analysts at BofA say data on credit and debit card spending suggests sales could rise 0.7 per cent with activity around the July 4th holiday stronger than last year.

Such an outcome would challenge the market's benign outlook for rates, with futures implying a 70 per cent chance the Federal Reserve is done hiking. The market also has more than 120 basis points of cuts priced in for next year starting from around March.

Minutes of the Fed's last meeting are due on Wednesday and could show members wanted to keep their options open on further hikes.

Analysts at Goldman Sachs argue the market has gone too far in pricing in aggressive easing.

"The motivation for cutting outside of a recession would be to normalise the funds rate from a restrictive level back toward neutral once inflation is closer to the target," they wrote in a note.

"Normalisation is not a particularly urgent motivation for cutting, and for that reason we also see a significant risk that the Fed will instead hold steady."

They expect cuts of only 25 basis points a quarter starting from the second quarter of next year, with the funds rate eventually stabilising at 3-3.25 per cent.

The resilience of the economy combined with a truly massive government borrowing requirement kept 10-year Treasury yields up at 4.18 per cent, after a rise of 12 basis points last week.

That rise juiced the dollar against the low-yielding yen, lifting it as far as 145.22 and a peak not seen since November last year. Concerns about possible intervention then saw it edge back to 144.95.

The euro has already reached its highest since late 2008 and was holding firm at 158.51 yen . The single currency was more range-bound on the dollar at $1.0933 .

The rise in the dollar and yields was weighing on gold at $1,911 an ounce , having fallen for three weeks in a row.

Oil prices have been going the other direction as tight supply meets forecasts of strong demand to deliver seven straight weeks of gains.

Monday saw some profit-taking nudge Brent down 36 cents to $86.45 a barrel, while US crude fell 31 cents to $82.88 per barrel.