Asian shares mixed as China growth worries crimp U.S. debt ceiling optimism

SINGAPORE  – Asian shares nudged lower on Friday, weighed down by China and Hong Kong stocks due to concerns over the stuttering recovery in the world’s second-biggest economy, although Japan’s Nikkei clocked a near 33-year peak.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2 percent but was set to eke out a gain of 0.19 percent for the week.

China shares fell 0.61 percent, while Hong Kong’s Hang Seng index dropped as much as 1.8 percent, dragged down by tech stocks after Alibaba Group Holding Ltd reported a lower-than-expected 2 percent rise in quarterly revenue.

Data in the week underscored that China’s economy lost momentum at the beginning of the second quarter, stoking worries over the wobbly post-COVID-19 recovery.

Japan’s Nikkei though continued its ascent, rising to its highest since August 1990, during the country’s so-called bubble era.

Investor attention has been firmly on the negotiations over U.S. debt ceiling and increasing hopes that a deal could be reached sent U.S. shares higher overnight [.N]. E-mini futures for the S&P 500 rose 0.16 percent.

U.S. President Joe Biden and House of Representatives Speaker Kevin McCarthy, the top Republican in Washington, hope to finalize a deal on the debt ceiling after Biden returns from the Group of Seven meeting in Japan on Sunday.

“What makes things more complicated this year is that the Democrats and Republicans are so wide apart from each other … negotiations will take a long time because each one is trying to get something out of that negotiations,” said Alexandre Tavazzi, head of CIO office and macro research for Pictet Wealth Management.

Meanwhile, data overnight showed fewer-than-expected Americans filed initial jobless claims last week, lowering odds that the Federal Reserve will cut interest rates before year-end.

Hawkish rhetoric from Fed speakers continued with Dallas Fed President Lorie Logan and St. Louis Fed President James Bullard saying inflation was not cooling fast enough to allow the Fed to pause its interest-rate hike campaign.

Markets are now pricing in 36 percent chance of a 25 basis point hike when the Fed meets next month, compared with 10 percent chance a week earlier, CME FedWatch tool showed.

Focus will now switch to Fed Chair Jerome Powell’s panel discussion later in the global day.

ActivTrades market analyst Anderson Alves said the hawkish narrative starkly contrasts with the message from May’s Fed meeting, which signaled a high bar for future hikes, a sentiment that Powell seemingly did not discourage during the last news conference.

In the currency market, the yen strengthened 0.14 percent to 138.51 per dollar, but was near the six-month low of 138.75 it touched overnight.

Against a basket of currencies, the dollar rose 0.077 percent and was wedged near a two-month high. The euro was down 0.07 percent to $1.0761, while sterling was last trading at $1.2391, down 0.14 percent on the day.

The offshore yuan fell to 7.0677 per dollar, the weakest since Dec. 2. Analysts predict more weakness in the future and point to the Fed’s policy as being the bigger driver than economic weakness at home.

U.S. crude fell 0.14 percent to $71.76 per barrel and Brent was at $75.78, down 0.11 percent on the day.

Spot gold eased 0.1 percent to $1,956.18 an ounce.