Most Asian markets followed the lead of a stronger Wall Street on Thursday. However, Chinese stocks faced challenges in sustaining a rally as data raised concerns about deflationary pressures in China and indicated that the economic slowdown may have further to run.
The Nikkei in Japan surged 1.5%, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2%. Australia and South Korea experienced gains, although Hong Kong’s Hang Seng index fell by 0.2%.
Alibaba’s shares dropped 5.2% as its third-quarter revenues failed to meet estimates.
China’s blue chips experienced volatile trade, with a 0.4% increase. The recent climb marked three consecutive sessions away from five-year lows as Beijing implemented various measures to stabilize the market rout. The Shanghai Composite index also gained 1%.
However, data released on Thursday indicated a 0.8% year-on-year fall in China’s consumer prices in January, marking the biggest drop since 2009 and missing the forecasted decline of 0.5%. Additionally, producer prices continued to fall, which had a negative impact on investor sentiment. On a positive note, consumer inflation accelerated 0.3% on a monthly basis.
Pinpoint Asset Management President Zhiwei Zhang emphasized the need for China to take quick and aggressive actions to prevent deflationary expectations from taking hold among consumers. While monetary policy has become more supportive, the fiscal policy has been slow to respond.
In an attempt to stabilize markets ahead of the weeklong Lunar New Year holiday, China ousted the head of its securities watchdog on Wednesday. However, this move failed to generate significant enthusiasm from investors.
Kerry Craig, the global market strategist at JPMorgan Asset Management, expressed the belief that officials are trying to steer the ship ahead of the Lunar New Year. Nonetheless, true turnaround in the market will rely on factors such as the property sector’s recovery, rising prices, and the wealth effect on consumers. Craig also noted that offshore investors are increasingly exploring markets outside of China or diversifying their portfolios.
On Wall Street, the S&P 500 closed at a record high due to strong earnings from Chipotle Mexican Grill and Ford Motor, which offset concerns about regional US banks.
Shares of New York Community Bancorp increased after the lender appointed a new executive chair and indicated it may reduce exposure to the commercial real estate segment.
Regarding interest rates, various Federal Reserve officials expressed their desire to postpone any rate cuts until they have greater confidence in inflation reaching the 2% target. This sentiment aligns with recent statements by Fed Chair Jerome Powell.
Market expectations still place an 80% probability of a rate cut as early as May. Futures indicate about 120 basis points of easing for 2024, down from 145 basis points the previous week.
While benchmark 10-year treasury notes remained relatively stable at 4.1%, they did reflect a 7 basis point increase for the week as the Fed pushed back against early rate cuts. The treasury department’s record sale of $42 billion in 10-year notes eased some concerns about market oversupply by receiving strong demand.
The dollar traded within a narrow range, maintaining recent gains at 103.99 against major peers.
Oil prices continued to rise after three consecutive sessions of growth. This positive momentum is supported by a larger-than-expected drop in US fuel stocks and ongoing tensions in the Middle East.
Israeli Prime Minister Benjamin Netanyahu rejected the latest ceasefire offer from Hamas.
Brent crude rose 0.3% to $76.46 a barrel, while US crude increased by 0.3% to $74.08 a barrel.
Investors will continue to monitor the Chinese market for signs of stability amid concerns about deflationary pressures and the ongoing economic slowdown. The actions of Chinese officials, particularly in the weeks leading up to the Lunar New Year, will be crucial in determining market sentiment. Additionally, the performance of US regional banks and the potential for future interest rate cuts will remain important factors for investors to consider.
As always, geopolitical tensions, particularly in the Middle East, can impact oil prices and further contribute to market volatility.
