Asia Stocks Exhibit Mixed Performance Amid China Losses and Fed Rate Cut Doubts

Asian equities displayed a mixed performance on Thursday, with China experiencing continued losses, following robust US retail sales data that cast doubt on the likelihood of a Federal Reserve rate cut in March.

Mainland China stocks retreated, with the Shanghai Composite Index dropping below 2,800 to its lowest level since 2020. The decline in the world’s second-largest economy followed underwhelming economic reports and indications from Premier Li Qiang that authorities would avoid substantial stimulus measures to revive growth.

Meanwhile, Japanese and South Korean equities advanced, while Australian stocks declined. Hong Kong shares initially erased all gains but rose toward the day’s high. US stock futures showed a slight decrease.

Investors are maintaining a cautious approach to Chinese equities, as Jun Rong Yeap, market strategist at IG Asia Pte, noted, “China’s economic data revealed a challenging growth environment despite the series of stimulus efforts.”

The subdued outlook for China and the reassessment of expected Fed cuts have contributed to a 2% decline in global stocks this year. Recent weakness in the yen against the strengthening greenback has brought the Japanese currency close to 150 per dollar.

Treasuries experienced a modest uptick following Wednesday’s selling, mainly concentrated on the short end of the curve. The two-year yield, sensitive to policy changes, saw its most significant one-day increase since June, rising by 14 basis points. The 10-year yield climbed four basis points, surpassing 4.1% for the first time in over a month.

The US dollar pared most of its gains recorded on Wednesday against other G-10 currencies. The Australian dollar remained relatively unchanged following a report showing unexpected employment slumps in December.

The drop in bond prices reflects a shift in investor expectations regarding a Fed rate cut in March. Swaps pricing indicates that the likelihood of such a cut slipped below 60% on Wednesday for the first time since mid-December, down from 80% on Friday.

This decline follows comments from Fed officials pushing back against market expectations for imminent cuts and stronger-than-expected retail sales data on Wednesday. The Fed’s Beige Book survey highlighted robust consumer spending, contributing to the country’s economic growth in recent weeks.

Norman Villamin, Chief Investment Officer of Private Banking at Union Bancaire Privee, expressed confidence, stating, “We feel yields at 4.5% are fair for what is a well-growing US economy. We don’t think a recession is on the cards in the United States.”

In Japan, a sale of 20-year sovereign bonds recorded a lower-than-expected cut-off price following weak auction results for other major tenors this month.

In corporate news, operators of Boeing Co.’s 737 Max 9 completed inspections on an initial batch of 40 planes, a crucial step toward ending the grounding of the aircraft. Meanwhile, Apple Inc. faced another legal setback in a patent dispute, leading to the suspension of sales for its Series 9 and Ultra 2 smartwatches with a blood oxygen feature in the US.

Gold recorded a slight gain after a more than 1% decline on Wednesday. West Texas Intermediate approached $73 per barrel on Thursday, while Bitcoin traded near $42,500, heading for a second day of losses.

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