Nikkei, Hang Seng Slip on Yen Rally, Global Recession Fears

A man wears a mask in the Shanghai Stock Exchange building in the Pudong financial district. Photo: Reuters

Asian stocks retreated on Thursday with weak consumer data from the US darkening the already gloomy global picture.

And Japan’s central bank’s decision to stand firm on its stimulus approach strengthened the yen which in turn weighed on its exporters and investors across the region.

Tokyo’s Nikkei share average dropped its most in two weeks, retreating from a one-month high, ending the day down 1.44% at 26,468.62. It retraced more than half of Wednesday’s 2.5% rally, when the central bank defied bond market pressure and kept policy settings unchanged.

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Japan’s equity benchmark hit a high of 26,816.68 on Wednesday, a level not seen since December 20, the day that the Bank of Japan shocked markets by loosening yield curve controls.

Investors had interpreted it as a sign that an exit from decades-old stimulus was coming sooner rather than later.

The broader Topix slumped 1% to 1,915.62, also giving back the best part of the previous day’s 1.68% rally.

The yen rallied some 0.8% to last trade at 127.885 per dollar, extending its rebound from Wednesday’s knee-jerk low of 131.58 and careening back towards Monday’s seven-month peak at 127.215.

China’s stocks rose with healthcare and information technology companies leading the gains, as strong foreign inflows helped sentiment, despite thin trading volumes ahead of the Lunar New Year holidays.

Chinese drugmakers were rushing to make anti-fever medicines and other treatments for Covid-19, after President Xi Jinping said he was worried about an influx of holiday travellers to rural areas ill-equipped to deal with sudden outbreaks.

Shares in healthcare and information technology added 2.2% and 2.6%, respectively, to lead the gains.

The week-long holiday officially starts on January 21, and economists are scrutinising the holiday season for hints of a consumption rebound in the country.

China’s blue-chip CSI 300 Index closed up 0.6%, and the Shanghai Composite Index added 0.49%, or 15.87 points, to close at 3,240.28.

The Hang Seng Index dropped 0.12%, or 27.02 points, to 21,650.98 while the Shenzhen Composite Index on China’s second exchange edged up 0.67%, or 14.14 points, to 2,112.10. The Hang Seng China Enterprises Index lost 0.4%.

Indian stocks retreated with Mumbai’s signature Nifty 50 index down 0.40%, or 73.20 points, at 18,092.15.

Microsoft Layoffs Add to Gloom

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2% and benchmark 10-year US Treasury yields, which fall when prices rise, hit their lowest since September at 3.326%.

Oil futures fell 1.3%. European futures and FTSE futures each fell 0.5%.

On Wednesday, the S&P 500 lost 1.6% after data showed US manufacturing output had slumped last month and retail sales had fallen by the most in a year.

“The decline in retail spending and industrial production adds to the theme of the economy slowing and heading into recession in 2023, and pushes back on the soft landing narrative dominating markets since January,” said National Australia Bank’s head of market economics, Tapas Strickland.

Microsoft’s announcement of 10,000 lay-offs and hawkish comments from two Fed presidents added to the gloom, with both Fed officials expecting US interest rates above 5% this year.

The dollar wound back London-trade losses in the New York session and made gains in Asia. The Australian dollar was last down 0.6% at $0.6896, losing ground after data showed an unexpected fall in Australian employment last month.

The euro was under gentle pressure at $1.1078 and the New Zealand dollar took news of Prime Minister Jacinda Ardern’s surprise resignation in its stride, but was pressured by broader dollar buying to last sit 0.5% lower.

Minutes from last month’s European Central Bank meeting are due later on Thursday, as is an appearance from ECB President Christine Lagarde at the World Economic Forum in Davos.

Key figures

Tokyo – Nikkei 225 < DOWN 1.44% at 26,405.23 (close)

Hong Kong – Hang Seng Index < DOWN 0.12% at 21,650.98 (close)

Shanghai – Composite > UP 0.49% at 3,240.28 (close)

London – FTSE 100 < DOWN 0.56% at 7,786.95 (0935 GMT)

New York – Dow < DOWN 1.81% at 33,296.96 (Wednesday close)

Reuters with additional editing by Sean O’Meara

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.