SINGAPORE: Asian shares struggled to make headway on Thursday, weighed down by a murky economic outlook in China and expectations the global rate easing cycle may not come as early as some had initially thought.
Chinese stocks plumbed multi-year lows as the dour mood over China's shaky economic recovery extended into a second day, while an escalation of geopolitical tensions also kept markets on edge.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3%, but was still languishing near Wednesday's two-month low of 490.45 points.
The downbeat mood looked set to continue into Europe, with EUROSTOXX 50 futures dipping 0.02% and FTSE futures down 0.08%.
Nasdaq futures meanwhile gained 0.06%.
China's blue-chip stock index tumbled to a five-year low of 3,171.63 points, while the Shanghai Composite Index likewise bottomed at 2,760.98 points, its weakest since April 2020.
"For Asia in particular, there are a few negative things that are impacting (markets)," said Khoon Goh, head of Asia research at ANZ.
"The paring back of rate cut expectations is definitely a factor... (but) for Asia, the bigger driver is the growth concerns around China.
"That continues to pose worries for investors."
China's economy grew 5.2% in 2023, data showed on Wednesday.
That was slightly more than the official target, but the recovery was far shakier than many analysts and investors expected, with a deepening property crisis, mounting deflationary risks and tepid demand casting a pall over the outlook for this year. And, unlike past downturns, Chinese policymakers have been in no rush to unveil massive stimulus.
Hong Kong's Hang Seng Index took a hit and touched an over 14-month low of 15,183.96 points. It rebounded slightly over the course of the trading day and was last 0.65% higher.
"I see no immediate reason to be a buyer of China's equities, but bears may want to warrant caution, especially as the (Hang Seng) index moves towards 15,000 and the 2022 low as they strike me as obvious support levels to trigger a shakeout," said Matt Simpson, senior market analyst at City Index.
Even Japan's Nikkei, which has had a stellar start to the year, drifted from Wednesday's 34-year peak and edged 0.03% lower.
"Foreign investors have been net buyers so far year-to-date and anecdotally many international investors that we speak to continue to build more substantial Japanese equities positions in their portfolios," said Oliver Lee, client portfolio manager at Eastspring Investments.
In geopolitics, Pakistan conducted strikes inside Iran on Thursday, targeting separatist militants, the Pakistani foreign ministry said, two days after Tehran said it attacked Israel-linked militant bases inside Pakistani territory.
Pakistan's benchmark share index fell 1.4%, while the Pakistan rupee fell marginally to 280 against the dollar.
HIGHER FOR LONGER
In the broader market, the dollar stayed elevated alongside U.S. Treasury yields as investors pared back expectations of early rate cuts from the Fed.
Traders are now pricing in a roughly 60% chance of a Fed cut in March, as compared to a near 70% chance a month ago, according to the CME FedWatch tool.
The benchmark 10-year Treasury yield was last at 4.0865%, not far from Wednesday's one-month high of 4.1290%, while the two-year yield last stood at 4.3312%.
The greenback was pinned near a one-month high against a basket of currencies at 103.18.
Data on Wednesday that showed a higher-than-expected increase in U.S. retail sales last month reinforced bets that U.S. rates would likely stay higher for longer.
"The paring back of expectations, particularly for the U.S., is understandable," said ANZ's Goh. "I think the market got a bit too carried away after the December FOMC meeting."
Against the euro, the dollar's gains were capped, after European Central Bank (ECB) officials similarly pushed back against rate cut expectations in the euro zone.
ECB President Christine Lagarde said on Wednesday victory against inflation in the bloc had not yet been won, while Dutch central bank chief Klaas Knot said the same day that investors were getting ahead of themselves in pricing in cuts from the ECB.
The single currency was last 0.2% higher at $1.0904.
In Britain, a hotter-than-expected reading on inflation likewise dented market expectations for an early Bank of England rate cut, propping the pound, which was last 0.18% higher at $1.2698.
"Central bankers are still casting doubts on cutting rates with alacrity in 2024," said Thierry Wizman, global FX and interest rates strategist at Macquarie.
"We think that what's also really motivating central bankers' new caution is uncertainty around the possible new supply shocks out there."
Down Under, the Australian dollar rose 0.21% to $0.6565, after having slid earlier in the session following data which showed domestic employment fell sharply in December.
In commodities, oil prices edged higher, with U.S. crude rising 61 cents to $73.17 per barrel. Brent gained 41 cents to $78.29.
Spot gold edged 0.3% higher to $2,012.10 an ounce. - Reuters
