Major markets in Tokyo, Shanghai, Hong Kong, Seoul, Taipei, Mumbai and Sydney were lower, in line with overall market sentiment ahead of a decision from the US Federal Reserve next week.
Asian stocks were on course to extend their weekly declines into a fifth straight week, following on from continuing weakness in US and European equities.
The Nikkei in Tokyo lost 1.1 percent at the close, as investors “found it difficult to aggressively take positions” ahead of a long weekend and the Fed’s upcoming decision, Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Research Institute, told AFP.
China’s factory output and retail sales beat expectations in August, new data released on Friday showed, despite the economy being hammered by Covid-related curbs, heatwaves and a deepening property market slump.
The data did little to buoy China’s main stock market, however, with Shanghai closing down 2.3 percent. Hong Kong closed down 0.9 percent.
Europe’s main stock markets slid at the open on Friday, with London’s FTSE 100 index particularly impacted by disappointing UK retail sales data.
Wall Street’s three main indices rallied briefly on Thursday, but the gains fizzled. Traders took little comfort from US President Joe Biden’s announcement of a tentative deal to avert a potentially damaging railroad strike.
All eyes remain on the Fed, which has already instituted two consecutive 75-basis-point hikes and is widely expected to carry out a third.
On Thursday, US retail sales data showed a surprising increase in August, but the report also downgraded sales in the month prior, tempering the good news.
Weekly US jobless claims retreated once again, and industrial production fell modestly in August.
The new data was not enough, however, to offset the widespread bearish sentiment following higher-than-expected US inflation data released earlier in the week, which showed yearly inflation slowing by less than forecast and monthly inflation rising.
– Fed expectations –
Analysts expect the Fed to continue raising interest rates, in a bid to cool an overheating economy and combat inflation, which remains near decades-highs in major economies.
“Because of the dramatic rise in Treasury yields, the Fed is going to have to keep raising rates beyond (next week),” said prominent investor Louis Navellier in his podcast on Thursday.
“I think they might now raise rates in November just before the (US) midterm elections and possibly December.”
Other commentators echoed that view. OANDA’s senior market analyst Edward Moya addressed the concern that further hikes could send the world’s largest economy into a recession.
“The latest round of data suggest the Fed can stick to aggressive rate hikes as the labour market remains strong and as the economy slowly softens,” he said.
“The risks of the Fed sending the economy into a severe recession are growing but right now the data doesn’t support that argument.”
Now that the data is in, markets are fully focused on the Fed’s decision as their next potential pivot, said Fiona Cincotta, senior financial markets analyst at City Index.
“This is a market waiting for the next catalyst,” she told Bloomberg News.
“What we saw in the selloff on Tuesday is the repricing of expectations of the Fed. Until we really hear from the Fed we are not going to get a very clear direction.”