Asia shares up: China wins, Gaza suffers

Sydney — Asian shares steadied on Wednesday after Chinese economic data suggested Beijing’s stimulus measures might finally be gaining traction, though a blast at a Gaza hospital dealt a blow to hopes for containing the conflict there.

Global bond markets also still nursed heavy losses as strong US retail data argued for a punishingly long stretch of high rates.

The outlook for the world economy did take a small turn for the better as China reported annual economic growth of 4.9% in the third quarter, beating forecasts for 4.4%.

Retail sales and industrial output for September also surprised on the upside, suggesting activity had been gaining momentum.

That helped Chinese blue chips pare early losses to be down 0.2%, though the initial reaction was muted overall.

The mood had been darkened as Israeli and Palestinian authorities traded blame for the blast that killed hundreds at a Gaza hospital, complicating US President Joe Biden’s already fraught trip to the region.

The news contributed to a spike in oil prices as investors worried Iran or other nations could get pulled in.

“We judge the risks are tilted towards escalation and spread of the Israel-Hamas conflict to other countries in the Middle East,” warned analysts at CBA in a note. “A major spike in volatility and a downgrade of the global economic growth outlook is possible.”

The cautious mood left MSCI’s broadest index of Asia-Pacific shares outside Japan a shade lower, while Japan’s Nikkei dipped 0.2%.

Euro Stoxx 50 futures slipped 0.2%, while FTSE futures were flat. S&P 500 futures and Nasdaq futures both eased 0.2%.

Tech stocks were dragged in part by a drop in Nvidia after news the Biden administration plans to halt shipments to China of more of its advanced artificial intelligence (AI) chips.

Markets are now anxiously awaiting earnings from Netflix and Tesla later in the session.

Bonds bruised 

Stocks were also pressured by a jump in bond yields after a barnstorming report on September US retail sales sent analysts scurrying to revise up forecasts for economic growth for both the third and fourth quarters.

JPMorgan jacked its growth call up to an annualised 4.3%, from 3.5%, while the influential Atlanta Fed GDPNow prediction jumped to a heady 5.4%.

Markets reacted by pricing in more risk the Federal Reserve will be forced to hike again. A move in November is still seen as just an 11% chance, but January climbed to 50% from 37%.

The market also again scaled back expectations for early rate cuts, with no chance of a move until June and about 54 basis points (bps) of easing implied for all of 2024.

Bonds took it badly, with two-year yields surging as much as 14bps on Tuesday to a 16-year peak of 5.24%. The two-year was last at 5.20%, while 10-year yields were back near recent highs at 4.84%.

The surge rippled through world bonds, with the Bank of Japan (BOJ) forced to conduct an unscheduled operation to buy Japanese government bonds (JGBs) to restrain a rise in yields.

More Fed comments are likely on Wednesday with no less than five officials speaking, ahead of an appearance by chair Jerome Powell on Thursday.

The rise in yields underpinned the US dollar, particularly on the low-yielding Japanese yen where the dollar reached 149.74 to again threaten major resistance at 150.00.

The euro eased back a touch to $1.0573, having been as high as $1.0595 on Tuesday.

Safe-haven flows lifted gold 0.9% to $1,940 an ounce, well above its recent trough of $1,809.

Oil prices swung higher once more, driven by concerns over the Middle East and data showing a fall in crude stocks.

Brent climbed $2.16 to $92.06 a barrel, while US crude rose $2.30 to $88.96 a barrel.

Reuters