Berliner Boersenzeitung - Markets swing on dimming rate cut hopes, weak China outlook

A lack of meaningful measures by Beijing to boost China's economy was adding to the frustration among investors, even as growth for 2023 came in at its slowest rate in more than three decades, excluding the pandemic years.

All three main indexes on Wall Street ended in the red after data showed US retail sales smashed forecasts in December as consumers brushed off higher borrowing costs.

The figures followed surprisingly high readings this month on consumer prices and jobs creation, as well as minutes from the Federal Reserve's most recent meeting that showed officials were keen to keep rates elevated for some time to contain inflation.

A string of data at the end of last year -- and a dovish statement from the US central bank -- had lit a fire under stocks in December and ramped up bets on the first of many rate cuts taking place in March.

But the past two weeks have virtually dashed those hopes, and Bloomberg News said traders have cut the likelihood of a March move to below 60 percent for the first time since December, down from 80 percent on Friday.

"The solid US retail figures are another piece of evidence vindicating the more cautious Fed guidance relative to market expectations," said National Australia Bank's Rodrigo Catril.

Hopes for an early cut by the European Central Bank have also been doused by boss Christine Lagarde who warned no such move was foreseen until the summer.

There was a small sliver of hope from the Fed's Beige Book report on the economic outlook, which showed US businesses were "optimistic" about the prospect of falling interest rates, even as economic conditions have remained largely unchanged in recent weeks.

Asian markets fluctuated through the day.

Tokyo was flat, while Sydney, Singapore, Wellington, Manila and Mumbai edged down.

But Seoul, Taipei, Bangkok and Jakarta rose.

Hong Kong and Shanghai enjoyed some rare gains after recent losses, though worries about China's economic outlook continued to drag on sentiment following Wednesday's soft economic growth figures.

While in line with forecasts, the 5.2 percent expansion was the worst since 1990 -- outside the Covid years -- and ramped up calls for authorities to provide a much-needed shot in the arm to the torpid economy, particularly the shattered property sector.

But demands for a "bazooka" stimulus similar to that unveiled during the financial crisis in 2008 have fallen on deaf ears, with Premier Li Qiang playing up the fact the latest reading was achieved without "massive stimulus".

"We did not seek short-term growth while accumulating long-term risk," he said at the World Economic Forum in Davos.

Analysts said the comments suggested officials were still not prepared to unleash the big financial guns.

"Authorities don't want to give the impression that they are very worried about growth, and they want to try to see the economy through 2024 without significant stimulus," Louis Kuijs, at S&P Global Ratings, said.

"There is a risk that they are underplaying the downward pressures on the economy."

Oil prices rose after Islamabad said it had carried out strikes against militant targets in Iran, with Tehran reporting a death toll of seven civilians after staging its own air raid in Pakistan earlier this week.

That came after the United States carried out more strikes on Huthi positions in Yemen as punishment for the Tehran-backed group's attacks on shipping in the Red Sea, which has ramped up worries about supplies of oil and other exports through the waterway.

- Key figures around 0700 GMT -

Tokyo - Nikkei 225: FLAT at 35,466.17 (close)

Hong Kong - Hang Seng Index: UP 1.2 percent at 15,461.01

Shanghai - Composite: UP 0.4 percent at 2,845.78 (close)

Dollar/yen: DOWN at 147.82 yen from 148.19 yen on Wednesday

Pound/dollar: UP at $1.2698 from $1.2680

Euro/pound: UP at 85.87 pence from 85.81 pence

Euro/dollar: UP at $1.0904 from $1.0884

West Texas Intermediate: UP 0.9 percent at $73.18 per barrel

Brent North Sea Crude: UP 0.6 percent at $78.33 per barrel

New York - Dow: DOWN 0.3 percent at 37,266.67 points (close)

London - FTSE 100: DOWN 1.5 percent at 7,446.29 (close)

(L.Kaufmann--BBZ)