Asian stocks stumble on growth concerns as central banks tighten

Asian stock markets slid on Thursday amid ongoing concerns over Chinese growth and worries about the US Federal Reserve’s intent to tighten policy quickly, confirmed minutes of the early May rate-setting meeting released overnight.

While Wall Street closed higher after minutes showing a majority of Fed policymakers supported a half-point rate hike in June and July, along with a unanimous view that the economy was strong, sentiment in Asia was subdued.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan fell 0.6 percent, capturing the month’s loss at 5 percent.

Australian stocks fell 0.47 percent, while Japan’s Nikkei stock index slipped 0.17 percent. In early European trade, pan-regional Euro Stoxx 50 futures were down 0.14 percent, as were German DAX futures.

“With high inflation, slowing growth, rising interest rates and concerns about the China (COVID-19) predicament, it is very difficult for investors to navigate this market right now, but at the same time, stagflation also looms as a potential problem.” , said Ryan Felsman, senior economist at fund manager CommSec.

The declines in Asia contrasted with more optimistic sentiment on Wall Street, where the Dow Jones Industrial Average rose 0.6 percent, the S&P 500 gained 0.95 percent and the Nasdaq Composite rose 1.51 percent.

All attendees at the May 3-4 Fed meeting supported a half-percentage-point rate hike – the first of this magnitude in more than 20 years – and “most attendees” believed that further hikes of this magnitude were “probably appropriate.” ‘ are the Fed’s June and July monetary policy meetings, according to the meeting minutes

While some investors fear that overly aggressive Fed rate hikes could push the economy into recession, Wednesday’s minutes seemed to indicate that the Fed would pause its tightening streak to gauge the impact on growth.

Immediate attention is on Thursday’s release by the Commerce Department of its second estimate of first-quarter GDP, which analysts expect will show a slightly flatter contraction than the originally reported quarterly contraction of 1.4 percent on an annualized basis.

“The Fed will keep its fingers crossed for Q1 GDP to be revised upwards today, as further print of -1.4 percent or worse could exacerbate stagflation concerns,” wrote Matt Simpson, senior market analyst at Broker City Index.

Elsewhere in Asia, South Korea’s central bank hiked interest rates for a second straight day as it struggles with consumer inflation at 13-year highs.

Chinese blue chips initially fell but rallied later on the day after a drop in daily COVID-19 cases in the country, where lockdown measures to curb the spread of the virus threaten to undermine recent economic support measures.

Mainland markets also appeared to seek relief after Premier Li Keqiang’s comments on Wednesday that China will strive to deliver decent economic growth in the second quarter and curb rising unemployment.

The dollar was little changed in Asian trading after rising Wednesday following Fed minutes. It was little changed against the yen at 127.30 while the euro was little changed at $1.0675.

The dollar index, which tracks the greenback against a basket of key peers, was just 0.13 percent higher at 102.20.

US Treasury yield movements were also muted. The 10-year yield edged up to 2.781 percent, and the politically sensitive two-year yield was flat at 2.502 percent.

Crude oil was steady after a cautious rally this week, with Brent crude flat at $114.03 a barrel and US crude up 0.13 percent at $110.47 .

Spot gold fell 0.2% to $1,849.19 an ounce.