© Reuters. A passerby walks past an electric monitor displaying various countries’ stock price index outside a bank in Tokyo, Japan, March 22, 2023. REUTERS/Issei Kato/File photo
By Wayne Cole
SYDNEY (Reuters) – Asian shares steadied on Wednesday as Chinese economic data suggested Beijing’s stimulus measures might finally be gaining traction, only to be overshadowed by fears of a widening conflict in the Middle East that lifted oil prices.
Global bond markets were also still nursing heavy losses as strong U.S. retail data argued for a punishingly long stretch of high rates.
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%.
Retail sales and industrial output for September surprised on the upside, suggesting activity was gaining momentum. That could not stop Chinese blue chips slipping 0.5% as cautioned gripped markets.
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 sober mood left MSCI’s broadest index of Asia-Pacific shares outside Japan 0.1% lower, while dipped 0.2%.
EUROSTOXX 50 futures and were both flat. eased 0.2% and Nasdaq futures 0.1%.
Tech stocks were dragged in part by a drop in Nvidia (NASDAQ:) 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 (NASDAQ:) and Tesla (NASDAQ:) 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 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%.
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.
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 U.S. dollar, particularly on the low-yielding Japanese yen where the dollar reached 149.69 to again threaten major resistance at 150.00.
The euro eased back a touch to $1.0573, having been as high as $1.0595 on Tuesday.
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.
climbed $1.76 to $91.66 a barrel, while rose $1.91 to $88.57 per barrel.
