China's Golden Week Offers Hopes for Consumer Spending Rebound

Arjun Pandit
02 Oct, 2023
Mumbai

Market indexes in Asia lacked enthusiasm in holiday shortened trading in the region and the yen dropped to an 11-month low in Tokyo. 

Asian markets have been under pressure for the last three months on twin worries of falling local currencies and looming global economic slowdown. 

The Japanese yen and the Chinese yuan are trading near multi-year lows and the Indian rupee is hovering near a record low after the U.S. dollar rebounded on the expectations of higher interest rates. 

The Japanese yen has been under pressure after the Bank of Japan continues to support its ultra-loose monetary policy amid rising global interest rates and expectations of a rebound in domestic interest rates. 

The Japanese yen traded at a new 11-month low, matching the level last seen in 1990. 

The yield on 10-year Japanese government bonds advanced advanced as much as 0.775% and the Bank of Japan announced its plan to purchase bonds of unspecified amounts on Wednesday. 

The central bank also purchased 300 billion yen or $2 billion of Japanese government bonds in Friday's trading, and the Bank of Japan swung into action after the yield on 10-year bonds jumped to a 10-year high and approached the 1% target rate.  

 

China Property Woes Deepen

Moreover, China's property woes are deepening amid lack of demand from buyers and growing uncertainties about the health of large property developers. 

Mortgage boycotts are likely to spread from second tier cities to Shanghai after the One Rivera residential complex missed two delivery deadlines. 

Trading in China Evergrande Group and its two subsidiaries was suspended on September 28 and the government alleged financial irregularities and siphoning of funds to overseas destinations. 

 

Golden Week Consumer Spending Expected to Rebound 

Economists and investors are also watching for signs of economic recovery after the nation kicked off eight-day long Golden Week holiday. 

The combined National Day and Mid-Autumn Festival is expected to lift consumer spending higher after three years of Coid-19 related lockdowns and disruptions.  

Based on the initial bookings, the railway authorities are forecasting 190 million trips during the holidays, a 39% jump compared to 2019 level. 

Weak consumer spending and falling economic growth has dragged down travel, leisure and consumer stocks down in the year so far. 

Consumer stocks, from the makers of home appliances, furniture, food and beverages, have remained under pressure since the beginning of the year. 

Consumer spending during the Golden Week generally serves as a barometer of economic growth in the second half and investors are still estimating China's economy to grow between 5.0% and 5.5% in 2023.  

The week-long holiday is the second holiday period after a five-day Labor Day break, since the authorities lifted draconian Covid-19 restrictions on December 7, 2022. 

During the five-day Labor Day holiday, travel and leisure spending jumped to 148 billion yen, roughly matching the level last seen in 2019, according to the data released by the government. 

 

Gold, Jewelry Sales and Yuan

Gold futures traded record high on the Shanghai Futures Exchange after consumers stepped up purchase of gold jewelry after the yuan dropped to a record low level. 

Investors seeking to preserve wealth and rising wedding-related demand are driving gold and jewelry prices higher and August gold jewelry sales soared 7.2% to 28.3 billion yuan or $3.9 billion.  

 

Asia Market Indexes 

In Monday's trading, the Nikkei index increased 0.6% to 32,055.96 and the yen dropped to an 11-month low matching the low about 25 year ago to 149.74 against the U.S. dollar.  

Financial markets are closed in India, China, Hong Kong and South Korea to observe local holidays. 

Elsewhere in the region, market indexes in Singapore and Taiwan lacked direction but advanced 0.2% but the indexes in Malaysia, Indonesia and Australia traded down between 0.2% and 0.3%. 

 

U.S. Narrowly Averts Government Shutdown 

Trading sentiment in Asia was cautious after the U.S. government narrowly averted a federal government shutdown and passed a spending bill for the next two weeks. 

If lawmakers do not approve additional spending in the next two weeks, the federal government is facing a shutdown on November 17 and rating agencies are likely to cut the U.S. government debt rating.