Asian equities experienced a notable decline on Wednesday, primarily led by a slump in Chinese stocks following a series of data revealing an inconsistent recovery in the world’s second-largest economy. Concurrently, the U.S. dollar approached a one-month high as traders scaled back expectations of early interest rate cuts.
MSCI’s broadest index of Asia-Pacific shares outside Japan witnessed a 1.34% slide, reaching a fresh one-month low and heading for its weakest weekly performance since August. The index marked a 3% decline for the week.
China’s stock market faced significant losses after economic data indicated a 5.2% growth in the fourth quarter, slightly below analysts’ expectations. Despite this, the growth ensured Beijing met its annual target of around 5%. December’s activity indicators, released alongside GDP data, highlighted slow retail sales growth and tepid investment, although industrial output exhibited signs of improvement.
China’s blue-chip stock index plummeted over 1% in early trading, hovering close to the lowest level since early 2019. Hong Kong’s Hang Seng index also slumped by 2.5%.
Jun Rong Yeap, a market strategist at IG in Singapore, commented on China’s economic data, stating, “The series of China’s economic data releases today seem to reflect more of the same—an uneven growth environment, which does not offer much conviction of a sustained turnaround just yet.” He added that weak economic data trends may amplify calls for supportive intervention by authorities in the first half of 2024.
In contrast to the regional slump, Japan’s Nikkei defied the broader trend, surging to a new 34-year peak, rising 0.5% after an initial surge of over 1%.
Investor enthusiasm was tempered by the hawkish rhetoric from central bank officials, resisting expectations of early rate cuts. U.S. Federal Reserve Governor Christopher Waller emphasized caution in lowering interest rates until lower inflation is sustained, echoing sentiments from European central bankers.
Kieran Williams, Head of Asia FX at InTouch Capital Markets, noted, “Waller’s comments were reflected in rate markets, with markets seemingly becoming a bit more skeptical that the Fed can deliver the aggressive cuts of over 160 basis points.”
Geopolitical concerns, including developments in the Red Sea, Gaza, and Ukraine, added to market uncertainties. U.S. stocks concluded lower in the previous session due to mixed earnings from major banks and sell-offs in Boeing and Apple.
In currency markets, the dollar index, measuring the U.S. currency against six rivals, rose 0.029%, nearing the one-month high it touched on Tuesday. The Japanese yen weakened to 147.34 per dollar, while Sterling was at $1.2634.
U.S. crude fell 0.68% to $71.91 per barrel, and Brent was at $77.84, down 0.57% on the day. Gold prices, after a 1% drop in the previous session on a stronger dollar, remained little changed at $2,028 in Asian hours.