Asian shares take lead from stronger Wall Street

Sydney — Most Asian markets tracked Wall Street higher on Thursday, but Chinese stocks were battling to sustain a rally after data raised concern about deflationary pressures in China and suggested the economic slowdown may have further to run.

Japan’s Nikkei surged 1.5%, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2%, with gains in Australia and South Korea being eroded by a 0.2% fall in Hong Kong’s Hang Seng index.

Shares of Alibaba fell 5.2% as its third-quarter revenues missed estimates.

China’s blue chips were up 0.4% in volatile trade, after climbing for three consecutive sessions to move away from five-year lows as Beijing rolled out a slew of measures to steady the market rout. Shanghai Composite index gained 1%.

Data on Thursday showed China’s consumer prices fell 0.8% in January from a year ago, the biggest drop since 2009, and missing forecasts for a decline of 0.5%. Producer prices also fell again, a negative for sentiment.

On a monthly basis, consumer inflation accelerated 0.3%.

“China needs to take actions quickly and aggressively to avoid the risk of deflationary expectation to be entrenched among consumers,” Pinpoint Asset Management President Zhiwei Zhang said. “Monetary policy has turned more supportive but the move in the fiscal policy is slow.”

Beijing’s latest attempt to steady markets before the weeklong Lunar New Year holiday was the ousting of China’s securities watchdog head on Wednesday, though that drew only a muted cheer from investors.

“I think the officials are trying to steer the ship before they head into the Lunar New Year…. But till the property sector really rights itself, prices start going up, consumers have that wealth effect … that’s really what it takes to see the market start to turn around a lot more,” said Kerry Craig, global market strategist at JPMorgan Asset Management.

“And I think a lot of offshore investors have started to look at other markets outside China or at least diversify as well.”

On Wall Street, S&P 500 closed at a record high, buoyed by strong earnings from Chipotle Mexican Grill and Ford Motor, which offset jitters about US regional banks.

Shares of New York Community Bancorp closed higher after the lender appointed a new executive chair and said it could cut exposure to the commercial real estate segment.

On the rate front, a slew of Federal Reserve officials said they wanted to hold off on cutting interest rates until they had more confidence that inflation was headed down to 2%, but that mostly echoed the recent message from chair Jerome Powell.

Markets are still pricing in an 80% probability of a rate cut as early as May, with futures implying about 120 basis points (bps) of easing for all of 2024, down from 145bps late last week.

Treasuries were in a holding pattern. The yield on benchmark 10-year notes were little changed at 4.1%, after edging slightly higher the previous day, but it was still up 7bps for the week, reflecting the pushback from Fed on early rate cuts.

The treasury department’s record sale of $42bn in 10-year notes drew strong demand, allaying some of the fear about excess supply in the market.

The dollar was trading in a tight range after recent gains, holding at 103.99 against its major peers.

Oil prices extended gains after climbing for three consecutive sessions, supported by a larger-than-expected fall in US fuel stocks and continued tensions in the Middle East.

Israeli Prime Minister Benjamin Netanyahu rejected the latest offer from Hamas for a ceasefire.

Brent rose 0.3% to $76.46 a barrel, while US crude edged up 0.3% to $74.08 a barrel.

Spot gold prices were 0.2% higher at $2037.49.