Asia markets stagnant as rate cuts worry China. Potentially setting the tone for Europe.

Tuesday's overnight session saw Asian stock markets sink to one-month lows, while the yuan faltered as China lowered interest rates in response to further dismal economic data.

The highest reductions in China's one-year loans to financial institutions since the beginning of the COVID epidemic were made, amounting to 15 basis points. In contrast to predictions, growth in industrial output and retail sales both dropped from a month earlier to annual rates of 3.7% and 2.5%, respectively.

The 10-year and five-year Chinese government bond rates fell to their lowest levels since 2020 at 2.56% and 2.35%, respectively, as investors fled to the shelter of bonds after the 0.6% decline in blue-chip Chinese stocks.

The difference over Chinese rates at the 10-year tenor reached its biggest in 16 years at 168.8 bps as U.S. yields increased. China recently said that it will stop releasing data on young unemployment, which is also not particularly encouraging.

The unexpected performance in Japan, where tourism and auto exports drove annualised growth soaring to 6% in the second quarter, much beyond the 3.1% economists had predicted, was overshadowed by China's disappointing figures.

The regulated Japanese rates leave a large gap in increasing U.S. yields, preventing the yen from reacting much and capping its decline to a nine-month low of 145.60 to the dollar.

The latest quarter's steady wages growth in Australia, which came in slightly below estimates, strengthened the argument for temporarily pausing interest rate increases.

The Australian dollar and the New Zealand dollar both edged marginally higher on hopes for stimulus in China, although they both still trade dangerously close to support levels around June lows.

Key developments today:

• German ZEW Conditions & Sentiment at 10:00 GMT
• US Core Retail Sales at 13:30 GMT
• US Retail Sales at 13:30 GMT

(Sources: investing.com, reuters.com)