Asia’s major stock indexes were mostly in the red on Thursday with investor mood downbeat as hopes faded of a US Fed U-turn on rates any time soon and as the latest data showed China’s economy continues to struggle.
The Federal Reserve committee’s decision to hold rates on Wednesday was no surprise, but it emphasised that rates would not be cut until it had more confidence that inflation was truly beaten.
And in China stocks dipped for a fifth session of declines, after a private-sector survey showed the country’s factory activity expanded modestly in January.
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Japan’s Nikkei share average fell as well, after US Federal Reserve chair Jerome Powell’s comments doused hopes of a possible interest rate cut in March.
Japanese indices tracked overnight Wall Street weakness, as US stocks fell after the latest Fed communications, while tech and tech-adjacent megacap stocks dropped further a day after disappointing Alphabet results. Of the Nikkei’s 225 constituents, only 49 rose, while 172 declined.
The Nikkei share average was down 0.76%, or 275.25 points, to close at 36,011.46, while the broader Topix was down 0.67%, or 17.06 points, to 2,534.04.
Mainland China stocks ended down, despite a rescue operation thought to be underway in China’s equity markets with large and unusual flows into blue-chip funds suggesting involvement by state-backed investors.
More than $17 billion flowed into four Chinese-domiciled exchange-traded funds tracking the CSI 300 index until January 26 this year, S&P Global Market Intelligence found.
The blue-chip CSI300 index closed up 0.07% after posting a record six monthly declines in a row, while the Shanghai Composite ended 0.64% lower, or 17.81 points, at 2,770.74. The Shenzhen Composite Index on China’s second exchange edged down 0.46%, or 7.15 points, to 1,537.75.
Hang Seng Bucks Trend
The region’s outlier was Hong Kong where tech giants surged 2% and healthcare shares advanced 2.1%, after sentiment was lifted by a Chinese official saying the government would maintain the “necessary intensity” for spending this year and support investment.
Hong Kong’s Hang Seng Index added 0.52%, or 81.14 points, to end at 15,566.21, while the Hang Seng China Enterprises Index finished up 0.57%.
Elsewhere across the region, in earlier trade, Sydney, Singapore, Manila and Mumbai were all down. Seoul, Wellington, Taipei, Bangkok and Jakarta were up.
The choppy trading left Asian markets cautious and MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.1%.
Markets have now doubled down on a May rates move by the Fed, pricing in 32 basis points of cuts – implying a 100% probability of 25 basis points and some chance of a 50 basis-point easing.
Investors also seemed to be wagering that the more the Fed delayed now, the more aggressive it would have to cut in the future given slowing inflation would sharply lift real rates.
As a result, Fed fund futures for December have priced in a further 11 basis points of easing this year taking the total expected to 141 basis points.
Nasdaq Under Pressure
Likewise, Treasuries rallied strongly as 10-year yields dived 12 basis points to 3.91% in the wake of the Fed decision. Some of those gains were then pared in Asia, nudging yields up to 3.942%.
The rush into bonds was further encouraged by renewed jitters over regional US banks when New York Community Bancorp crashed 37% to the lowest in over two decades after posting a surprise loss.
That spilled over into other bank stocks and contributed to a sharp pullback in the S&P 500 late Wednesday, while the Nasdaq had already been pressured by falls in Alphabet Inc and Tesla.
By Thursday, sentiment had steadied and S&P 500 futures added 0.2%, while Nasdaq futures firmed 0.4%. Markets face a major test later in the day with results out from Apple, Amazon and Meta.
Currency markets were jolted by the mixed reaction to the Fed, with the dollar gaining on the euro but losing to the yen as bond yields slid.
Oil prices pared some of the sharp losses suffered on Wednesday, as tensions in the Middle East helped offset concerns about oversupply and soft global demand.
Key figures
Tokyo – Nikkei 225 < DOWN 0.76% at 36,011.46 (close)
Hong Kong – Hang Seng Index > UP 0.52% at 15,566.21 (close)
Shanghai – Composite < DOWN 0.64% at 2,770.74 (close)
London – FTSE 100 > UP 0.40% at 7,660.75 (0934 GMT)
New York – Dow < DOWN 0.82% at 38,150.30 (Wednesday close)
- Reuters with additional editing by Sean O’Meara
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