Asian equity markets fell further into the red on Wednesday after China released economic growth data that failed to impress. Additionally, comments from a Federal Reserve (Fed) official dampened hopes that interest rate cuts could be coming soon. The Dollar Index continued to strengthen and oil fell slightly.
Gross domestic product (GDP) in China grew slower in the fourth quarter than market expectations, coming in at +5.2% when compared with the same period a year earlier. On a quarter-on-quarter basis, GDP grew just 1.0% in the fourth quarter, down from 1.5% quarter-on-quarter growth in the third quarter. That is still enough for Beijing to meet its 5% growth target for the full year, but disappointed traders. Chinese retail sales data, also released Wednesday, underpinned the fragile economy, growing at the slowest pace since September. In addition, Chinese new home prices dropped at the fastest pace in almost a decade and have been falling for half of a year. Chinese markets have been under pressure for most of 2023 after the highly anticipated reopening of the world’s second-largest economy disappointed investors consistently throughout the year. Instead of a vibrant reopening, the economy has been plagued by problems in the real estate sector, as well as weak consumer demand and local government debt issues, even as Beijing responded with stimulus measures.
Stocks were down for another day across the board in the Asia-Pacific region, with Hong Kong's Hang Seng Index leading losses, closing down 3.7%. The Shanghai Composite lost 1.4%. In Tokyo, the Nikkei 225 continued to retreat from multi-decade highs, falling another 0.3% on Wednesday after the sentiment index for large manufacturers slipped to +6 points in January from +12 points the month before. A lack of Chinese demand was cited as one reason for the poor mood in the industrial sector. In South Korea, the Kospi lost 2.5% and Australia’s S&P/ASX 200 fell 0.3%.
In New York, trading of stocks started back up with losses after a long weekend. Dragging market sentiment down were comments from Federal Reserve Governor Christopher Waller that interest rate cuts may not come as soon as some investors had expected. The Dow Jones Industrial lost 0.6%, the S&P 500 was down 0.4% and the Nasdaq-100 closed roughly flat on Tuesday.
Banking stocks were in focus again midweek with Goldman Sachs shares bucking the trend and gaining 0.7% on Tuesday after the US bank presented fourth-quarter results that beat expectations. Revenue at Goldman’s equities-trading division jumped 26% in the fourth quarter, while revenue at its asset and wealth management unit increased 23%. Morgan Stanley shares dropped 4.2% after presenting results that showed disappointing fixed-income trading revenue. The results come after the largest US bank, JPMorgan Chase, posted the highest profit in its history for the year at just under USD 50 billion last week. The US benchmark KBW Bank Index dropped 1.3% on Tuesday.
In the euro zone, consumer expectations for inflation fell to the lowest level since 2022 in November, propping up hopes that the European Central Bank (ECB) will soon begin cutting rates. Inflation expectations for the coming year fell to 3.2% from 4% in the previous survey. Looking ahead three years, inflation expectations were 2.2%, down from 2.5%, but still above the ECB’s 2% inflation target. The Euro Stoxx 50 fell 0.2% on Tuesday. ECB President Christine Lagarde is due to take the stage in Davos on Wednesday (16:15 CET).
In the Red Sea, two ships were struck early this week by missiles and oil giant Shell is discontinuing oil tanker transports through the strategically important waterway, according to media reports. Houthi rebels in the region have been targeting ships in recent weeks. Despite the turmoil, oil prices were down slightly on Tuesday with WTI trading below USD 72 and Bent below USD 78. A broader conflict in the region would have a wide-ranging impact on markets, particularly energy markets.
Corporate news in focus: Quarterly figures from Alcoa and Charles Schwab.
Economic data in focus: The World Economic Forum continues in Davos, UK Consumer Price Index, euro area consumer prices, US retail sales, European Central Bank President Christine Lagarde speaks in Davos, US Fed Beige Book.
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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.