Asia markets mixed after U.S. reaches debt ceiling deal; Japan stocks at highest since July 1990

Deutsche Bank “remains optimistic” about China in the medium and longer term despite an uneven economic recovery, its chief investment officer for Asia Pacific Stefanie Holtze-Jen said.

“Overall, it is an uneven recovery. I think everybody understood that by now,” said Holtze-Jen on CNBC’s “Squawk Box Asia” on Monday. China’s industrial firms saw profits fall at a slower pace in April while retail sales jumped 18.4% year on year.

“But they are parts of the economy that will be very much supported, especially on the consumer side. And we’ve got lots of rhetoric from the government regarding to that,” said Holtze-Jen.

The Communist Party in April had said that it will maintain support for the economy, focusing on boosting domestic demand.

“We’ve seen the data around the May Day holiday in China being very interesting,” she added. In the May Day holiday, China’s tourism industry rebounded to pre-COVID 19 levels, with domestic trips soaring by more than two-thirds from a year ago.

“The rest of Asia is very much benefiting also from that China reopening story that will be with us for longer,” said Holtze-Jen, noting that Thailand is reporting “very optimistic tourist inflows from China.”

“We remain, especially compared to the U.S. and Europe, still very optimistic on the Asia complex,” said Holtze-Jen.

— Sheila Chiang

The dollar index could further strengthen to 105 in the short term with the U.S. jobs report to be released later this week as well as a looming vote on the debt ceiling deal, SMBC said in a Monday note.

“Asian currencies are expected to weaken, but the decline may be limited as more market participants are also looking for chances for Asian currencies to appreciate in preparation for risk-on sentiment after the Fed pauses rate hikes,” Ryota Abe, Asia Pacific economist at Sumitomo Mitsui Banking Corporation (SMBC) wrote.

 The dollar index slid marginally to 104.164 in Asia’s morning session. The Japanese yen slightly strengthened to 140.52 against the U.S. dollar, while the offshore Chinese yuan weakened to 7.0791 against the greenback.

“U.S. economic data released last week support hawkish stances on rate hikes,” Abe wrote in the note. “Combined with CPI released earlier this month, the data show stronger than expected inflationary pressures, reigniting concerns over inflation in the US,” he wrote.

— Jihye Lee

Wharton School Professor Jeremy Siegel said he is concerned tighter lending standards may combine with the U.S. Federal Reserve’s “tremendous tightening” to hurt small and mid-sized companies later this year.

“I think smart money really settled that there was going to be a (debt ceiling) deal so it does clear a little bit of uncertainty, but there’s a lot of worries ahead about the tremendous tightening that the Federal Reserve has done,” Siegel told CNBC Monday.

“The bank problems that will not lead to a crisis of bank deposits but tightening of lending standards, particularly for small and mid sized companies,” he added. “And I am concerned about the second half of the year and possibly what we might see is now a focus on those problems.”

— Clement Tan

Stocks of Japanese trading houses, distribution services and technology stocks were the top gainers on Japan’s Nikkei 225 index on Monday, with the index jumping 2% at the open and last trading 1.32% higher.

Optical and imaging company Nikon was the top gainer on the index, advancing 4.51%, while semiconductor equipment manufacturer Advantest was the second largest gainer at 4.18% up.

Other names on the top gainers list included trading houses Sumitomo Corporation and Mitsubishi Corporation, as well as Softbank Group.

China’s latest industrial profit plunge provide an argument for its central bank to lower interest rates, Deloitte China told CNBC.

“There’s no inflation in China, therefore you need a looser monetary policy,” Deloitte China’s chief economist Sitao Xu told CNBC’s “Squawk Box Asia” on Monday.

He pointed to the People’s Bank of China’s daily USD/CNY reference rate, or the midpoint fix, as functioning similarly to a rate cut.

“If you look at the recent change on the exchange rate, the impact is the same as the lowering interest rate,” he told CNBC.

The PBOC on Monday set its yuan fixing at 7.0575 compared to the previous session’s 7.0760 against the U.S. dollar.

— Jihye Lee

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— Weizhen Tan

Singapore state-owned investor Temasek cut the compensation of senior management and its investment team responsible for the recommendation to invest in failed cryptocurrency exchange FTX.

“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced,” Chairman Lim Boon Heng said in a statement.

The move from Temasek comes after an internal review was launched to look into its investment into FTX, which resulted in a write-down of $275 million.

Lim added that there was fraudulent conduct by FTX “intentionally hidden from investors, including Temasek.” The statement did not specify how many staff were affected, nor the severity of the pay cuts.

— Lim Hui Jie

Cleveland Federal Reserve President Loretta Mester told CNBC on Friday that she expects more interest rate increases will be needed as inflation stays elevated.

“When I look at the data and I look at what’s happening with the inflation numbers, I do think we’re going to have to tighten a bit more,” Mester said on “Squawk on the Street.” “We’ve made progress. Now it’s this calibration exercise, and that’s what’s difficult.”

Mester is a nonvoting member this year on the rate-setting Federal Open Market Committee.

—Jeff Cox

The core personal consumption expenditures index, the Fed’s preferred gauge of inflation, rose 0.4% in April. That’s more than economists polled by Dow Jones expected. Year over year, core PCE rose 4.7%, also more than expected.

— Fred Imbert

Markets raised their bets for a June rate hike from the Federal Reserve following hotter-than-expected inflation data Friday morning.

Odds for a quarter percentage point increase jumped to 56%, according to CME Group data. That followed a report showing that personal consumption expenditures prices rose 0.4% in April and 4.7% from a year ago.

The chances of an increase were just 17% a week ago. The probability of a hike by no later than July rose to 75%.

—Jeff Cox

The final reading on May consumer sentiment was slightly above expectations. The University of Michigan’s consumer sentiment index came in at 59.2, while economists polled by Dow Jones had forecast a reading of 57.7.

To be sure, that level is well below April’s 63.5.

“Consumer sentiment slid 7% amid worries about the path of the economy, erasing nearly half of the gains achieved after the all-time historic low from last June. This decline mirrors the 2011 debt ceiling crisis, during which sentiment also plunged,” Surveys of Consumers director Joanne Hsu wrote.

— Fred Imbert