Asia Stocks Slip as Rate Hike Looms But China Gets Data Lift

 

Asian stocks struggled again on Wednesday as fears of a global recession took hold across trading floors, though China bucked the trend advancing off the back of promising factory data.

Japan’s Nikkei hit a one-month low with investors distracted ahead of the latest Fed rate decision, extending losses for a fourth straight session, but China’s markets were boosted after data showed surprising growth in industrial production in May

There was also another lift with investors expecting further policy support from Beijing to fuel a broader growth rebound.

 

Also on AF: US Companies in Shanghai Slash Revenue Outlooks, Survey Shows

 

Tokyo’s Nikkei share average dropped 1.14% to close at 26,326.16, near the day’s low, in what is now the benchmark’s longest losing streak in more than three months. The broader Topix slid 1.2%, also deepening losses in afternoon trading.

Money markets are now certain that the Fed will raise rates by 75 basis points later in the day, which would be the biggest increase since late 1994, after data last week showed US consumer price inflation running red hot.

China stocks, though, rose to more than three-month highs, lifted by strong inflows after data showed industrial production rose unexpectedly last month.

At the close, the Shanghai Composite index was up 0.5% at 3,305.41, after touching its highest level since March 8 earlier in the session. The Hang Seng Index gained 1.14%, or 240.22 points, to 21,308.21 and Hong Kong’s tech index was up 2.35%

China’s blue-chip CSI300 index, which also touched its highest point since March 8 on Wednesday, finished 1.32% higher.

 

China Freezes Medium-Term Lending Rates

But while investors are hoping for continued support for the economy, China’s central bank chose to keep its medium-term lending rates unchanged on Wednesday.

The smaller Shenzhen index ended up 0.64% and the start-up board ChiNext Composite index was higher by 1.051%.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.07%. Indian stocks dropped with Mumbai’s signature Nifty 50 index down 0.21%, or 32.35 points, at 15.699.75.

Globally, European markets rallied on news the European Central Bank would hold an emergency meeting on the recent bond market sell-off ahead of the US rate hike decision.

The worries about rising borrowing costs and inflation globally have been hammering financial markets all year.

Economists fear drastic Fed action in particular could tip the world into recession and the degree to which the US central bank lifts rates later is being intensely watched.

 

Treasury Yields Hit Decade Highs

Treasury yields had hit decade highs overnight and the dollar a 20-year peak as futures implied it was near certain the Fed would hike by 75 basis points to a range of 1.50-1.75% later on Wednesday.

Indeed, markets already have rates reaching an eye-watering 3.75-4.0% by the end of the year.

With so much priced in, a few brave investors, also buoyed by the ECB, were looking for bargains and S&P 500 futures were up 0.7%, while Nasdaq futures rose 0.75% and Dow futures added 0.4%.

The dollar was trading at 134.66 yen, having reached heights last visited in 1998 at 135.60.

The latest gains came as the Bank of Japan ramped up its bond buying to keep yields near zero, even as much of the rest of the world tightens policy.

Oil prices edged up after the Organization of the Petroleum Exporting Countries stuck to its forecast that world oil demand will exceed pre-pandemic levels in 2022.

 

Key figures

Tokyo – Nikkei 225

Hong Kong – Hang Seng Index > UP 1.14% at 21,308.21 (close)

Shanghai – Composite > UP 0.50% at 3,305.41 (close)

New York – Dow

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

China Industrial Output Grows, Pointing to Partial Recovery

China Property Investments Fall 4% Ahead of Bond Maturities

Sean O’Meara

Sean O’Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.