Asian markets experienced a notable decline as fresh economic data from China intensified worries about the country’s economic health, coupled with investor skepticism about potential Federal Reserve interest rate cuts. Hong Kong’s Hang Seng Index led the downturn, plummeting nearly 4%, while the CSI 300 mainland Chinese benchmark also saw a 1.6% decline. These losses followed official figures indicating that while China reached its 2023 economic goal, a housing slump and sluggish domestic demand remained significant challenges.
The regional gauge recorded a 1.7% drop, with Japanese equities reversing earlier gains. The negative sentiment extended to US and European stock futures, with short-dated Treasury yields and the dollar edging up.
Zhang Zhiwei, Chief Economist at Pinpoint Asset Management Co., commented on China’s economic situation, stating, “China’s nominal GDP growth in 2023 is lower than the real GDP growth, due to deflationary pressure. The labor market is weak. This suggests China is likely growing below its potential growth.”
The weakened market tone in Asia followed a 0.4% decline in the S&P 500 on Tuesday and a Treasury selloff that raised 10-year yields by approximately 12 basis points. While 10-year yields remained steady in Asia on Wednesday, their two-year counterparts rose an additional 2 basis points.
The market movements were influenced by comments from Fed Governor Christopher Waller, who hinted at a possible rate cut this year if inflation approaches the central bank’s target. Waller emphasized that when the time is right, rate adjustments should be made “methodically and carefully.” Consequently, swaps market pricing for a rate cut in March slightly decreased to around 65%, down from 80% on Friday.
Mixed economic data from China added to the uncertainties, with the country’s gross domestic product growing 5.2% in 2023, matching economists’ expectations but highlighting concerns about a housing slump and slower-than-expected retail sales. China’s economy-wide prices also saw their longest slide since 1999, raising the need for substantial policy stimulus.
In the commodities sector, oil prices fell due to a stronger US dollar and a broader risk-off sentiment. The dollar experienced its most significant rally in 10 months, as expectations of rapid rate cuts by the Fed diminished.
In the US, Morgan Stanley faced a decline amid warnings about lower margins in wealth, while Goldman Sachs Group Inc. rose as profits exceeded estimates. Boeing Co. saw a drop following an analyst downgrade, and Apple Inc. slipped as the US Supreme Court declined to consider its appeal in an antitrust suit related to the App Store.
Gold remained stable after a Tuesday decline of more than 1%, trading around $2,028 per ounce, while Bitcoin held steady above $43,000.
