(Bloomberg) — Asian stocks followed losses in their US peers as growing concern about inflation led to a selloff in Treasuries, and as worsening sentiment toward China sapped sentiment.
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MSCI’s gauge of regional equities headed for its biggest one-day drop in more than two weeks, more than erasing Tuesday’s rally. China’s benchmark stock index slid to the lowest since September with investors fearful of an anticipated hike in US tariffs. The S&P 500 fell more than 1% Tuesday as a report on US service providers showed inflation hitting the highest since early 2023.
“We must ask whether there is reason to buy risk today,” said Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne. “I’d argue that there isn’t.”
Economic uncertainties are damping investor optimism across Asia, with Chinese markets indicating growing alarm over a deflationary spiral. That comes as yield premiums in credit are near their lowest since the global financial crisis, testing investor appetite for a spate of deals that are flooding global debt markets.
Investors in China’s $11 trillion government bond market have never been so pessimistic. The nation’s 10-year yields have tumbled to all-time lows in recent weeks, and are now more than 300 basis points below their US peers. That’s despite a slew of economic stimulus measures announced by President Xi Jinping’s government.
China maintained its tight grip on the yuan Wednesday through its daily reference rate. The People’s Bank of China set the so-called fixing at 7.1887 per dollar, 1,528 pips stronger than the average estimate in a Bloomberg survey of traders and analysts. The widening gap shows policymakers’ intention to prevent a rapid yuan selloff.
Still, some market watchers continued to express optimism about the country’s assets.
“While it is certainly possible that policy support will prove insufficient to keep housing trending up, to boost household confidence and to counteract the pain from US tariffs, there is a lot more upside than downside risk in Chinese stocks in 2025,” said Thomas Gatley, a China strategist at Gavekal Dragonomics. “This is particularly true for onshore stocks,” which benefit most directly from policy aid and are less exposed to issues like US tariffs, he said.
Indian shares declined after the government lowered its economic growth projection for the fiscal year to the weakest since the pandemic, with economists saying even that forecast may be too optimistic.
Samsung Gains
South Korean stocks bucked the downward trend, boosted by Samsung Electronics Co. The tech giant’s shares rose after Nvidia founder Jensen Huang said he was confident in Samsung’s ability to resolve technical issues dogging its highest-end memory.
European equity futures declined after two days of gains for the Euro Stoxx 50 Index. Deutsche Bank AG strategists including Maximilian Uleer said while they expect US equities to perform well in 2025, they see European shares outperforming them.
“Economic surprises continue to improve, political uncertainty is fading, a new German government likely offers more opportunities than risks and potential Chinese stimulus announcements in the first quarter add upside risk,” the strategists said.
Treasuries were little changed in Asia after falling across the curve in US trading. The 10-year yield remained near its highest levels since April after jumping six basis points Tuesday.
“With the trough in yields more than 100 basis points lower and more than three months ago, we think this should also help yields find greater stability in the coming weeks,” JPMorgan Chase & Co. strategists Jay Barry, Jason Hunter and Phoebe White wrote in a note.
Traders scrapped bets the Fed will cut rates until the second half of the year, after having fully priced in a reduction by March as recently as late September. Separate US data Tuesday showed job openings rose to a six-month high in November, boosted by a jump in business services, while other industries showed more mixed demand for workers.
Oil rose for a second day on Wednesday after an industry report pointed to another drop in US inventories, and Bitcoin traded below $100,000.
Key events this week:
Eurozone PPI, consumer confidence, Wednesday
US ADP employment, Fed minutes, consumer credit, Wednesday
Fed’s Christopher Waller speaks, Wednesday
China CPI, PPI, Thursday
Eurozone retail sales, Thursday
US state funeral and national day of mourning for former President Jimmy Carter is a federal holiday, Thursday
Fed’s Patrick Harker, Thomas Barkin, Jeff Schmid and Michelle Bowman speak, Thursday
Japan household spending, leading index, Friday
US jobs report, consumer sentiment, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.3% as of 2:46 p.m. Tokyo time
Japan’s Topix fell 0.6%
Hong Kong’s Hang Seng fell 1.1%
The Shanghai Composite fell 0.8%
Euro Stoxx 50 futures fell 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.0353
The Japanese yen was little changed at 158.15 per dollar
The offshore yuan was little changed at 7.3465 per dollar
Cryptocurrencies
Bitcoin was little changed at $96,570.17
Ether was little changed at $3,364.2
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
