Asian stocks were largely on the back foot again as positive news about China’s economy was overshadowed by a hawkish Fed and escalating events in the Middle East.
The outlook for the world economy did seem to take a turn for the better as China reported annual economic growth of 4.9% in the third quarter, beating forecasts for 4.4%.
But the mood darkened as Israeli and Palestinian authorities traded blame for the blast that killed hundreds at a Gaza hospital, complicating US President Joe Biden’s already fraught trip to the region.
The news contributed to a spike in oil prices as investors worried Iran or other nations could get pulled in.
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Japan’s Nikkei share average ended flat as investors weighed the better-than-forecast Chinese economic data against the possibility of a more aggressive Federal Reserve.
Strong US retail sales overnight raised the potential for a more protracted period of tight monetary policy, at a time when investors were already on edge due to the escalating conflict in Gaza.
The Nikkei closed up just 0.01% at 32,042.25 in a volatile session where it fell as much as 0.54%, before rising 0.19% just before closing bell. The broader Topix ended with a 0.14% gain.
Chinese stocks fell as a widened US chip export ban heightened investor concerns about geopolitical risks, even as the third-quarter economic data came in above expectations.
Consumption and industrial activity in September also surprised on the upside, suggesting the recent flurry of policy measures is helping to bolster a tentative recovery.
China’s blue-chip CSI 300 Index dropped 0.79%, while the Shanghai Composite Index dipped 0.80%, or 24.79 points, to 3,058.71. The Shenzhen Composite Index on China’s second exchange was down 1.49%, or 28.08 points, to 1,856.12.
Hong Kong-listed tech firms lost 1.2% and the benchmark Hang Seng Index fell 0.23%, or 40.82 points, to 17,732.52. The Hang Seng China Enterprises Index was down 0.28%.
The sober mood left MSCI’s broadest index of Asia-Pacific shares outside Japan 0.1% lower. Indian stocks advanced with Mumbai’s signature Nifty 50 index down 0.58%, or 115.35 points, at 19,696.15.
World Bonds Surge
Eurostoxx 50 futures and FTSE futures were both flat. S&P 500 futures eased 0.2% and Nasdaq futures 0.1%.
Stocks were also pressured by a jump in bond yields after a barnstorming report on September US retail sales sent analysts scurrying to revise up forecasts for economic growth for both the third and fourth quarters.
JPMorgan jacked its growth call up to an annualised 4.3%, from 3.5%, while the influential Atlanta Fed GDPNow prediction jumped to a heady 5.4%.
Markets reacted by pricing in more risk the Federal Reserve will be forced to hike again. A move in November is still seen as just an 11% chance, but January climbed to 50% from 37%.
Bonds took it badly, with two-year yields surging as much as 14 basis points on Tuesday to a 16-year peak of 5.24%. The two-year was last at 5.20%, while 10-year yields were back near recent highs at 4.84%.
The surge rippled through world bonds, with the Bank of Japan forced to conduct an unscheduled operation to buy JGBs to restrain a rise in yields.
More Fed comments are likely on Wednesday with no less than five officials speaking, ahead of an appearance by Chair Jerome Powell on Thursday.
The rise in yields underpinned the US dollar, particularly on the low-yielding Japanese yen where the dollar reached 149.69 to again threaten major resistance at 150.00.
Safe-haven flows lifted gold 0.7% to $1,938 an ounce, well above its recent trough of $1,809.
Oil prices swung higher once more, driven by concerns over the Middle East and data showing a fall in crude stocks. Brent climbed $1.76 to $91.66 a barrel, while US crude rose $1.91 to $88.57 per barrel.
Key figures
Tokyo – Nikkei 225 > UP 0.01% at 32,042.25 (close)
Hong Kong – Hang Seng Index < DOWN 0.23% at 17,732.52 (close)
Shanghai – Composite < DOWN 0.80% at 3,058.71 (close)
London – FTSE 100 < DOWN 0.10% at 7,667.24 (0933 BST)
New York – Dow > UP 0.04% at 33,997.65 (Tuesday close)
- Reuters with additional editing by Sean O’Meara
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