Asian benchmarks mostly fall amid lingering concerns over China

By YURI KAGEYAMA – AP Business Writer

TOKYO (AP) — Asian stocks mostly fell on Thursday amid concerns about the impact of China’s “zero-COVID” strategy mixed with hopes of a return to normal economic activity and the tourism.

Benchmarks fell in Tokyo, Seoul, Hong Kong and Shanghai, while gaining in Sydney. Oil prices have fallen.

Market watchers have noted concerns about how the Federal Reserve may not ease its aggressive interest rate hikes, which are aimed at curbing inflationary pressures. Much of the earlier market rally on Wall Street was due to such hopes, including lower inflation.

“Markets remain unconvinced that the US Fed will opt for smaller rate hikes as incoming data has sent mixed signals,” said Mizuho Bank’s Venkateswara Lavanya.

US retail trade data showed improvement, while industrial production fell, underscoring the resilience of the service sector, as opposed to weakening external demand.

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The Fed raised interest rates in a bid to slow the economy and rein in the highest inflation in decades. Wall Street feared it would brake too hard and cause a recession.

Japan’s benchmark Nikkei 225 lost 0.1% in morning trade to 27,990.62. Australia’s S&P/ASX 200 gained 0.2% to 7,138.20 after government data showed the employment picture improved in October from September.

The South Korean Kospi slipped 0.6% to 2,461.74. Hong Kong’s Hang Seng fell nearly 0.9% to 18,101.00, while the Shanghai Composite fell 0.5% to 3,105.87.

China maintains its “zero-COVID” approach of mass testing many people alongside localized lockdowns and quarantines to completely eliminate the coronavirus. These restrictions have caused a shortage of supply for some of Asia’s largest manufacturers, which has hurt economic growth.

Elsewhere, the lifting of pandemic-related restrictions has fueled hopes of increased consumer spending and tourism income.

On Wall Street, retailers and tech companies led a broad slide. The S&P 500 fell 0.8%, erasing most of its gains from the previous day. The Dow Jones Industrial Average fell 0.1% and the Nasdaq lost 1.5%.

Discourage quarterly updates of Target and other retailers are putting investors in the mood to sell, despite a report showing that U.S. retail sales remained strong last month.

Target fell 13.1% after slashing its holiday season forecast following a surprisingly large drop in third-quarter earnings. The retailer also said its sales have slowed sharply in recent weeks.

“I think the market could say the broader data we have is correct, but what Target is saying is a bit more forward-looking in terms of what they expect for the holiday season, and that might not be so good,” said Willie Delwiche, investment strategist at All Star Charts.

Other retailers also helped drag the market down. Advance Auto Parts fell 15.1% after posting weak financial results. Best Buy fell 8.6%. Macy’s, which releases its financial results on Thursday, fell 8.1%.

In total, the S&P 500 fell 32.94 points to 3,958.79. The Dow Jones slid 39.09 points to 33,553.83. The tech-heavy Nasdaq fell 174.75 points to 11,183.66.

Small company stocks also lost ground. The Russell 2000 Index fell 36.04 points, or 1.9%, to 1,853.17.

The government’s latest retail sales report for October shows that consumer spending remains strong, although it is unclear whether this is due to more purchases or higher prices.

Strong consumer spending is generally a good sign for the economy, but it could make the Fed’s strategy to cool the economy more difficult.

“The better-than-expected retail sales results do not confirm that the Fed” can ease its campaign to slow the economy with high interest rates, said Tom Hainlin, national investment strategist at US Bank Wealth Management.

He said resilient consumer spending could improve the Fed’s chance of achieving a so-called “soft landing” with its strategy. This would imply controlling inflation without plunging the economy into a recession, or at least avoiding a damaging recession.

Bond yields were mixed. The 10-year Treasury yield, which influences mortgage rates, fell to 3.69% from 3.78% on Tuesday evening. The two-year Treasury yield rose to 4.37% from 4.35% on Tuesday night.

The war in Ukraine is also weighing on market sentiment, particularly in the energy sector. Any worsening could cause spikes in the prices of oil, gas and other commodities the region produces.

In energy trading, benchmark U.S. crude fell 67 cents to $84.92 a barrel. US crude oil prices rose first, before falling 1.5% on Wednesday. Brent crude, the international standard, fell 62 cents to $92.24 a barrel.

In currency trading, the US dollar fell slightly to 139.47 Japanese yen from 139.51 yen. The euro traded at $1.0389, down from $1.0396.

AP Business Writers Damian J. Troise and Alex Veiga contributed to this report.

Yuri Kageyama is on Twitter

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