Asian stocks waver on China deflation worries, mixed Japan earnings

LONDON: Asian shares traded cautiously on Thursday as investors fretted about growing deflationary pressures in China and a mixed bag of Japanese earnings, while a standoff over the U.S. debt ceiling overshadowed a meeting of G7 finance leaders. The outlook for Europe looked somewhat more upbeat, however, with pan-region Euro Stoxx 50 futures rising 0.26%, German DAX futures up 0.2% and FTSE futures up 0.17%.

U.S. stock futures, the S&P 500 e-minis, were up 0.22%. In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1%, reversing gains in the morning session, as fresh worries about weak demand in China weighed on sentiment.

China's consumer prices rose at a slower pace and missed expectations in April, while factory gate deflation deepened, official data showed on Thursday, suggesting more stimulus may be needed to boost a patchy post-COVID economic recovery. The consumer price index (CPI) in April rose 0.1% year-on-year, the lowest rate since February 2021, while the producer price index (PPI) fell at the fastest clip since May 2020, declining 3.6% year-on-year.

"Looking ahead, in year-over-year terms, we expect headline CPI inflation to accelerate modestly on continued economic recovery and PPI deflation to persist in the coming months," Goldman Sachs analysts said in a note. Markets are also watching out for Japan's full-year earnings season, with Honda, Nissan and SoftBank Group among the companies reporting.

Group of Seven (G7) finance leaders on Thursday open three days of meetings in Japan and will seek to diversify supply chains away from China - but also try to get Beijing's cooperation in solving global debt problems. Australian shares were down 0.13%, while Japan's Nikkei stock index slid 0.1%, retreating for a second-straight session from a 16-month peak, with 154 companies losing ground versus 64 that advanced.

Nearly 300 companies reported earnings on Wednesday, followed by about 1,500 more on Thursday and Friday. China's blue-chip CSI300 index edged down 0.08% in the afternoon session, while Hong Kong's Hang Seng index dropped 0.5%.

"While both China's CPI and PPI data are lower than expected, the market's reaction to that is not very strong today. Investors don't expect further loosening of domestic liquidity in the near future as the market liquidity is already reasonably ample," said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management. A gauge of global stock markets rose and bond yields slid on Wednesday after data showed U.S. consumer prices in April rose at a slightly slower-than-expected pace, raising hopes that the Federal Reserve's interest rate hiking cycle is close to an end.

The Labor Department's Consumer Price Index (CPI) rose 4.9% in April from a year ago, compared with expectations of a 5% increase. The Nasdaq ended Wednesday at its highest intraday level in more than eight months, boosted by the lower-than-expected increase in April inflation and Alphabet Inc's latest artificial intelligence rollout.

The Nasdaq Composite added 1.04% while the S&P 500 gained 0.45% and the Dow Jones Industrial Average fell 0.09%. The two-year Treasury yield, which typically moves in step with rate expectations, touched 3.9265% compared with a U.S. close of 3.901%. The yield on benchmark 10-year Treasury notes reached 3.4364% compared with its U.S. close of 3.436% on Wednesday.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, edged 0.03% higher to 101.440. The Japanese yen held to gains and was last seen at 134.215. The European single currency was flat on the day at $1.0977, having lost 0.39% in a month.

Oil prices rose as strong demand for fuel in the U.S. outweighed concerns about the possibility of the world's biggest oil producer and consumer defaulting on its debt. U.S. crude ticked up 0.87% to $73.19 a barrel. Brent crude rose to $77.09 per barrel.

Gold was slightly higher. Spot gold was traded at $2031.8911 per ounce.