Asian stock markets were mostly range-bound on Thursday as investors grappled with concerns over rising interest rates and a weaker economic outlook. However, strong holiday spending figures from China lent support to local shares. The Shanghai Composite index rose 0.6% and local markets in China reopened with limited losses in the Shanghai Shenzhen CSI 300 index. Consumer and financial stocks saw the biggest gains for the day as data revealed that travel and shopping demand surged during the holiday season. Hong Kong’s Hang Seng index also gained 0.9% on the back of local stocks of Chinese-listed firms. However, data showed that China’s manufacturing sector unexpectedly shrank in April, casting a shadow over the country’s economic recovery. This led to losses in Chinese blue-chip industrial stocks, which pulled the CSI 300 lower.
Meanwhile, broader Asian markets moved in a flat-to-low range, reflecting the weak lead-in from Wall Street after the Federal Reserve hiked interest rates, as expected. The KOSPI in South Korea fell 0.3%, while the Taiwan Weighted index rose 0.2%. Philippine stocks led gains across Southeast Asia with a 0.6% rise. Australia’s ASX 200 index fell 0.1% as strong retail sales and trade balance data this week suggested more room for the Reserve Bank to keep raising interest rates.
Although the Fed had toned down some of its hawkish language, indicating a possible pause in its rate hike cycle, Fed Chair Jerome Powell cautioned that interest rates could rise further if inflation remains stubborn. Powell also warned of a potential recession this year, which dented sentiment towards risk-driven assets while driving safe-haven assets like gold to record highs. Fed Fund futures prices suggest that the market is pricing in a 92% chance of a pause in rate hikes in June, according to the CME FedWatch tool. However, given Powell’s remarks and the high borrowing costs, risk-driven assets are likely to suffer for the remainder of the year.