Asia Stocks Mixed on China Losses, Fed Cut Doubts: Markets Wrap

(Bloomberg) — Asian equities were mixed Thursday, with China extending a drop, after strong US retail sales data cast fresh doubt on the likelihood of a Federal Reserve rate cut in March.

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Stocks in mainland China retreated, with the Shanghai Composite Index slipping below 2,800 to the lowest since 2020. The heavy selling in the world’s second largest economy followed underwhelming economic reports and signs from Premier Li Qiang that authorities will avoid huge stimulus to revive growth.

Australian shares declined, while Japanese and South Korean equities advanced. US futures traded within a narrow range after the S&P 500 and Nasdaq 100 both fell 0.6% Wednesday.

Investors continue to shun Chinese equities, Jun Rong Yeap, market strategist at IG Asia Pte, wrote in a note. “China’s economic data revealed a challenging growth environment despite the series of stimulus efforts,” he added.

The muted outlook for China and the repricing of expected Fed cuts have wiped 2% from global stocks this year. Recent weakness in the yen against the backdrop of strength in the greenback has nudged the Japanese currency within arm’s reach of 150 per dollar.

Treasuries steadied after further selling on Wednesday which was concentrated on the short end of the curve. The policy-sensitive two-year yield jumped 14 basis points, its biggest one-day increase since June. The 10-year rose four basis points to climb above 4.1% for the first time in more than a month. Australian and New Zealand yields also nudged higher Thursday.

The dollar pared most of the gains it recorded Wednesday against its Group-of-10 peers after a rally drove an index of the greenback to a one-month high in the previous session. Elsewhere, the Aussie dollar was little changed following a report which showed the nation’s employment unexpectedly slumped in December.

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Jason Draho at UBS Global Wealth Management says that it’s unlikely to be a smooth path for markets.

“Investors will be debating the type of soft landing, stage of the cycle, and the macro regime, and the wide dispersion of views now could quickly evolve based on new data,” Draho said. “That could lead to quick and dramatic market pivots to price in shifting consensus views.”

The drop in bond prices reflected a shift in investor expectations for a Fed rate cut in March. Swaps pricing shows the chances of such a cut slipped below 60% on Wednesday for the first time since the middle of December. That’s down from 80% on Friday.

The decline followed comments from Fed officials this week pushing back against market expectations for imminent cuts and stronger-than-expected retail sales data Wednesday. Bumper consumer spending helped propel the economy in recent weeks, the Fed said in its Beige Book survey.

The selling was also felt in Europe with the region-wide Euro Stoxx 50 slipping 1% on Wednesday, as investors digested comments from European Central Bank President that it will likely trim rates in the middle of the year. A slide in UK bonds after data showed inflation picked up also prompted traders to pare bets on Bank of England easing.

Elsewhere in corporate news, operators of Boeing Co.’s 737 Max 9 have completed inspections on an initial batch of 40 planes, a key step to eventually end the grounding of the aircraft. Meanwhile, Apple Inc. has to stop selling its Series 9 and Ultra 2 smartwatches with a blood oxygen feature in the US, after suffering another legal setback in a patent dispute.

Gold was little changed after falling more than 1% Wednesday. West Texas Intermediate climbed toward $73 per barrel early Thursday.

Key events this week:

• US housing starts, initial jobless claims, Thursday

• Republican presidential primary debate in New Hampshire, Thursday

• ECB President Christine Lagarde participates in Davos panel discussion, Thursday

• ECB publishes account of December policy meeting, Thursday

• Atlanta Fed President Raphael Bostic speaks, Thursday

• Canada retail sales, Friday

• Japan CPI, tertiary index, Friday

• US existing home sales, University of Michigan consumer sentiment, Friday

• ECB President Christine Lagarde and IMF Managing Director Kristalina Georgieva speak in Davos, Friday

• San Francisco Fed President Mary Daly speaks, Friday

Here are some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 11:43 a.m. Tokyo time

• The Nasdaq 100 futures were little changed

• Japan’s Topix rose 0.2%

• Australia’s S&P/ASX 200 fell 0.4%

• Hong Kong’s Hang Seng rose 0.3%

• The Shanghai Composite fell 1.6%

• Euro Stoxx 50 futures were unchanged

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.1% to $1.0897

• The Japanese yen was little changed at 148.04 per dollar

• The offshore yuan was little changed at 7.2169 per dollar

Cryptocurrencies

• Bitcoin was…