Asian shares experienced a decline on Friday, breaking a six-day winning streak, as optimism surrounding China’s rescue measures dwindled, coupled with disappointing results from Intel Corp. Mainland China and Hong Kong saw a drop in shares following the largest three-day rally in their equities since 2022, driven by expectations that recent initiatives from Beijing would support the economy and stabilize stock markets. Japan’s Nikkei index fell by approximately 1.5%, while Korea’s index gained. On the other hand, US equity futures retreated after Intel delivered a forecast that fell short of expectations, while European markets advanced.
Morgan Stanley lowered its targets for major China stock indexes, citing challenges related to debt, demographics, and deflation as obstacles to further equity gains.
Vishnu Varathan, Chief Economist for Asia ex-Japan at Mizuho, highlighted the risks associated with China’s economic, financial, and currency challenges. He also pointed out political uncertainties in Asia, suggesting a potential re-evaluation, with Indonesia facing potential Cabinet stumbles and India dealing with religious divisions despite being an economic bright spot.
Inflation in Tokyo dipped below 2% for the first time in over a year and a half, prompting speculation about the Bank of Japan’s stance on price growth and the timing of an anticipated interest rate hike.
The Bank of Japan’s discussions about the exit from negative interest rates have intensified, according to December policy meeting minutes, fueling market expectations of a move in March or April.
Markets in Australia and India remained closed for holidays.
While Wall Street achieved another all-time high with a sixth consecutive day of gains, Asian markets faced headwinds. The robust US gross domestic product data defied recession forecasts, supporting optimism for Corporate America. Alex Wolf, Head of Asia Investment Strategy at JPMorgan Private Bank, expressed encouragement, anticipating positive earnings growth to continue driving equities higher.
The S&P 500 closed near 4,900, and US 10-year yields slid to 4.12%. The rally has been fueled by falling inflation and expectations of a Fed rate cut in 2024, surpassing Wall Street consensus. Investors are now questioning the sustainability of the rally that began last year, considering historical performance after the S&P 500 hits new highs.
In other news, oil prices rose to a two-month high due to factors such as US inventories, Chinese stimulus, and an attack on a Russian refinery.
