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Asian Stocks Down Over China Economic Downturn Concerns

Stock Markets May 25, 2022 10:39PM ET
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By Gina Lee – Asia-Pacific stocks were mostly down on Thursday morning. Gains remained modest, with the U.S. Federal Reserve striking a less hawkish note in the minutes from its last meeting. However, the economic impact of China’s ongoing COVID-19 lockdowns was also on investors’ minds.

Japan’s Nikkei 225 inched down 0.03% by 10:25 PM ET (2:25 AM GMT).

South Korea’s KOSPI was up 0.40%. The Bank of Korea hiked its interest rate to 1.75%, up from 1.5%, as it handed down its policy decision earlier in the day.

In Australia, the S&P/ASX 200 was down 0.47% and Hong Kong’s Hang Seng Index fell 0.88%.

China’s Shanghai Composite edged down 0.18% and the Shenzhen Component slid 1.19%.

Chinese stocks traded in the U.S. gained, even as investors monitor the government’s measures to tackle the economic downturn from the country’s COVID-19 restrictive measures. China’s economy is in some respects faring worse than in 2020 when the pandemic first emerged, according to Premier Li Keqiang. Li also urged efforts to reduce the rising unemployment rate.

U.S. futures fell, with Nasdaq 100 futures underperforming. The S&P 500 ended rebounded from earlier losses to end higher and the tech-heavy Nasdaq 100 outperformed.

Yields on benchmark 10-year Treasuries were steady, while two-year yields edged higher.

The Fed minutes, released on Wednesday, did not show an even more aggressive path being mapped to tackle elevated prices.

Most U.S. policymakers saw half-point rate hikes as appropriate at the next two meetings, keeping in line with Fed Chairman Jerome Powell’s latest comments.

While the minutes noted the potential for rates to go high enough to constrain the economy, there were hints of a possible pause or an “expedited” tightening, that would leave the Fed “well-positioned later in the year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments.”

“If inflation gets tame enough over summer, there may not be continued raising of rates,” Pepper International chief executive officer Carol Pepper told Bloomberg.

Investors should look at buying tech after the selloff, she added.

“Stagflation, I just don’t think that’s going to happen anymore. I think we are going to be in a situation where inflation will start tapering down and then we will start going into a more normalized market.”

However, investors continued to price in 100 basis points of Fed interest rate hikes over the central bank’s next two meetings. The risk of a U.S. recession, added to the ongoing impact of China’s COVID-19 lockdowns and the war in Ukraine, also means that market volatility remains.

On the data front, the U.S. GDP is due later in the day. The core PCE price index, personal income and spending; wholesale inventories, and University of Michigan consumer sentiment will follow a day later.

Asian Stocks Down Over China Economic Downturn Concerns

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