Asian Shares Pare Losses on China data, Mid East Risk Lifts Oil

Reuters

12:21 JST, October 18, 2023

SYDNEY, Oct 18 (Reuters) – Asian shares steadied on Wednesday after Chinese economic data suggested Beijing’s stimulus measures might finally be gaining traction, though a blast at a Gaza hospital dealt a blow to hopes for containing the conflict there.

Global bond markets also still nursed heavy losses as strong U.S. retail data argued for a punishingly long stretch of high rates.

The outlook for the world economy did take a small turn for the better as China reported annual economic growth of 4.9% in the third quarter, beating forecasts for 4.4%.

Retail sales and industrial output for September also surprised on the upside, suggesting activity had been gaining momentum.

That helped Chinese blue chips .CSi300 pare early losses to be down 0.2%, though the initial reaction was muted overall.

The mood had been darkened as Israeli and Palestinian authorities traded blame for the blast that killed hundreds at a Gaza hospital, complicating U.S. 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.

“We judge the risks are tilted towards escalation and spread of the Israel-Hamas conflict to other countries in the Middle East,” warned analysts at CBA in a note. “A major spike in volatility and a downgrade of the global economic growth outlook is possible.”

The cautious mood left MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS a shade lower, while Japan’s Nikkei .N225 dipped 0.2%.

EUROSTOXX 50 futures STXEc1 slipped 0.2%, while FTSE futures FFIc1 were flat. S&P 500 futures ESc1 and Nasdaq futures NQc1 both eased 0.2%.

Tech stocks were dragged in part by a drop in Nvidia NVDA.O after news the Biden administration plans to halt shipments to China of more of its advanced artificial intelligence chips.

Markets are now anxiously awaiting earnings from Netflix NFLX.O and Tesla TSLA.O later in the session.

BONDS BRUISED

Stocks were also pressured by a jump in bond yields after a barnstorming report on September U.S 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 annualized 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%.

The market also again scaled back expectations for early rate cuts, with no chance of a move until June and around 54 basis points of easing implied for all of 2024. FEDWATCH

Bonds took it badly, with two-year yields US2YT=RR 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 US10YT=RR 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. FED/DIARY

The rise in yields underpinned the U.S. dollar, particularly on the low-yielding Japanese yen where the dollar reached 149.74 JPY=EBS to again threaten major resistance at 150.00.

The euro eased back a touch to $1.0573 EUR=EBS, having been as high as $1.0595 on Tuesday.

Safe-haven flows lifted gold 0.9% to $1,940 an ounce XAU=, well above its recent trough of $1,809. GOL/

Oil prices swung higher once more, driven by concerns over the Middle East and data showing a fall in crude stocks. O/R

Brent LCOc1 climbed $2.16 to $92.06 a barrel, while U.S. crude CLc1 rose $2.30 to $88.96 per barrel.