Asia’s stock indexes took a step back on Tuesday as anxious investors braced themselves for another US interest rate hike, though those losses were limited by growing signs of a post-Covid recovery in China.
Traders broadly expect the US Federal Reserve to raise interest rates by 25 basis points (bps) on Wednesday and rate announcements are due on Thursday from both the Bank of England and the European Central Bank – and both are expected to hike rates by 50 bps.
That nervousness fed into Asia’s markets and Japan’s Nikkei share average was the first to drop, slipping 0.39% to finish at 27,327.11, after opening the session higher. The index did, though, post a 4.72% monthly gain, its best since October. The broader Topix was down 0.36% to 1,975.27.
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US economic data scheduled to be released this week includes readings on consumer confidence, construction spending and unemployment, and those are expected to factor into whether the Fed will conclude its rate hikes in March.
China and Hong Kong stocks fell as investors locked in their gains after a strong rally fuelled by record monthly foreign inflows on growing signs of a post-Covid economic recovery.
Official data on Tuesday showed that China’s economic activity swung back to growth in January, confirming that the economy had bottomed in December.
And despite the week-long Spring Festival break, China’s onshore stock market witnessed roughly 140 billion yuan ($20.72 billion) in net foreign buying via Stock Connect in January, registering the biggest monthly inflows on record. It also surpassed total inflows in 2022.
But, nevertheless, some investors are wary over signs of an escalating Sino-US tech war.
China tech stocks dropped after news that the Biden administration has now stopped approving licences for US companies to export certain items to China’s Huawei.
The Hang Seng Index dropped 1.03%, or 227.40 points, to 21,842.33. The Shanghai Composite Index fell 0.42%, or 13.65 points, to 3,255.67, while the Shenzhen Composite Index on China’s second exchange was down 0.36%, or 7.82 points, to 2,142.55.
For the month, though, the CSI300 is set to jump nearly 8%, while Hang Seng is on track to gain 10%.
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Elsewhere across the region, Australian shares were down 0.15% but Indian stocks advanced with Mumbai’s signature Nifty 50 index up 0.08%, or 13.20 points, at 17,662.15.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 1.1% lower. But the index is up 9.9% so far this month and is on course for its best January performance since 2012.
Meanwhile, more than 100 S&P 500 companies, including Apple, Amazon.com and Google parent Alphabet, are expected to report results this week, which also will see the publication of closely watched US employment numbers.
European markets were set for a lower open, with pan-region Euro Stoxx 50 futures down 0.48%, German DAX futures falling 0.47% and FTSE futures dropping 0.29%. US stock futures, the S&P 500 e-minis, were down 0.06%.
At the end of the Fed’s two-day policy meeting on Wednesday, investors will be glued to Chair Jerome Powell’s news conference for clues on whether the rate-hiking cycle may be coming to a close, and for signs of how long rates could stay elevated.
Markets will also grapple with a flood of US economic data, culminating in Friday’s payrolls report for January. Investors see signs of weakening in the labour market as a key factor in bringing down high inflation.
In currencies, the US dollar, which was poised for its fourth month of declines, was slightly up at 102.29 against a basket of other major currencies.
In the energy market, oil prices fell ahead of the expected hikes by central banks and signals of strong Russian exports. US crude dipped 0.44% to $77.56 a barrel. Brent crude fell to $84.85 per barrel.
Key figures
Tokyo – Nikkei 225 < DOWN 0.39% at 27,327.11 (close)
Hong Kong – Hang Seng Index < DOWN 1.03% at 21,842.33 (close)
Shanghai – Composite < DOWN 0.42% at 3,255.67 (close)
London – FTSE 100 < DOWN 0.64% at 7,735.03 (0935 GMT)
New York – Dow < DOWN 0.77% at 33,717.09 (Monday close)
- Reuters with additional editing by Sean O’Meara
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