Asian stocks moved in a flat-to-low range in their first trading day of 2024, as sentiment was battered by weak economic prints from China, while a devastating earthquake in Japan also put traders on edge.
Most regional markets were also due for some correction after strong gains through December, amid growing bets that the Federal Reserve will cut interest rates early in 2024. U.S. stock futures were steady in Asian trade on Tuesday.
Sentiment towards Asia was also dented by a powerful earthquake in central Japan, which destroyed several homes and disrupted train lines throughout the region. Japanese markets were closed for a week-long holiday, but futures for the Nikkei 225 index fell 0.4%. The Nikkei was the best-performing major stock index in 2023, with a nearly 30% gain.
Chinese stocks continued to lag their peers after marking steep losses in 2023, with recent purchasing managers index data showing little improvement in business activity.
Chinese stocks sink on dismal official PMIs
China’s bluechip Shanghai Shenzhen CSI 300 index fell 1.1%, extending an over 12% decline from 2023 as weak official PMI data pointed to sustained weakness in the world’s second-largest economy. The bluechip index also traded at a near five-year low.
The Shanghai Composite index lost 0.3% on Tuesday, while Hong Kong’s Hang Seng index slid 1.7% on losses in mainland stocks.
China’s official manufacturing PMI shrank more than expected in December, with an average reading for 2023 also indicating contraction. The non-manufacturing PMI remained in sight of contraction in December.
While a private survey showed some signs of resilience in manufacturing activity, growth still remained largely modest on sustained weakness in offshore demand for Chinese goods.
A post-COVID Chinese economic recovery largely failed to materialize in 2023, as the country grappled with deflation and sluggish stimulus measures from the government. This kept investors largely wary of Chinese markets, with stocks seeing sustained outflows through the year.
Broader Asian markets moved in a flat-to-low range, with Australia’s ASX 200 adding 0.4%, while South Korea’s KOSPI fell 0.1%.
Futures for India’s Nifty 50 index pointed to a weak open, with Indian stocks due for some profit-taking after logging stellar gains in 2023. The Nifty also remained in sight of record highs.
Markets were awaiting more cues on U.S. interest rate cuts this week, primarily from key nonfarm payrolls data for December, which is due on Friday. But expectations over early interest rate cuts by the Fed remained largely in play, with CME’s Fedwatch tool indicating that traders were pricing in an over 70% chance for a 25 basis point rate cut in March.
Expectations of early interest rate cuts by the Fed drove strong gains in Wall Street through December, which in turn spilled over into Asian markets. But whether this rally can sustain will be largely dependent on U.S. economic data.