Shares Fall More on China Data Weakness, Fed Bets: Markets Wrap

(Bloomberg) — A stock selloff deepened in Asia, after fresh data redoubled concerns about China’s economy and as investors curbed wagers on Federal Reserve interest rate cuts.

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Hong Kong shares led the declines, with the Hang Seng Index tanking nearly 4%. The CSI 300 mainland Chinese benchmark also fell 1.6%. The losses came after official figures showed while China reached its 2023 economic goal, the country’s housing slump has worsened and domestic demand remained listless.

A regional gauge dropped 1.7%, with Japanese equities reversing earlier gains. US and European stock futures also slid further, while short-dated Treasury yields and the dollar edged up.

“China’s nominal GDP growth in 2023 is lower than the real GDP growth, due to the deflationary pressure. Labor market is weak,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Co. “This suggests China is likely growing below its potential growth.”

The weaker tone in Asia came after the S&P 500 lost 0.4% on Tuesday and a selloff in Treasuries that pushed up 10-year yields by around 12 basis points. While the 10-year yields were steady Wednesday in Asia, their two-year counterparts rose a further 2 basis points.

The moves followed comments from Fed Governor Christopher Waller, who urged caution but said a rate cut this year was possible if inflation edges lower toward the central bank’s target. When the time is right, rates should be lowered “methodically and carefully,” Waller said during a virtual event on Tuesday.

Reflecting a recalibration of Fed rate cut expectations, swaps market pricing for a rate cut in March inched lower to around 65% from 80% on Friday.

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Mixed China Data

Data released earlier Wednesday showed China’s gross domestic product grew 5.2% last year, matching the rate that economists had expected and exceeding Beijing’s official target of “around 5%.” The latest figures for December continued to feed worries about…