Asian shares trade mixed after Wall Street dips amid dimming rate cut hopes

TOKYO: Asian shares traded mixed on Thursday as pessimism spread among investors about any imminent interest rate cut in the United States.

Japan's benchmark Nikkei added 0.5 per cent in morning trading to 35,637.01.

Australia's S and P/ASX 200 slipped 0.5 per cent to 7,357.40. South Korea's Kospi gained 0.6 per cent to 2,450.00.

Hong Kong's Hang Seng dipped nearly 0.2 per cent to 15,251.64, while the Shanghai Composite dropped 2.3 per cent to 2,768.90.

Wall Street slipped following another signal that it may have gotten too optimistic about when the Federal Reserve will deliver the cuts to interest rates.

The S and P 500 fell 26.77 points, or 0.6 per cent, to 4,739.21. It's the second-straight stumble for the index after it closed out its 10th winning week in the last 11 near its all-time high.

The Dow Jones Industrial Average dipped 94.45, or 0.3 per cent, to 37,266.67, and the Nasdaq composite slumped 88.73, or 0.6 per cent, to 14,855.62.

Rising yields in the bond market once again put downward pressure on stocks. Yields climbed after a report showed sales at U.S. retailers were stronger in December than economists expected.

While that's good news for an economy that's defied predictions for a recession, it could also keep upward pressure on inflation. That, in turn, could push the Federal Reserve to wait longer than traders expect to begin cutting interest rates after jacking them drastically higher over the past two years. Lower rates would relax the pressure on the economy and financial system, while also goosing prices for investments.

The yield on the 10-year Treasury jumped immediately after the retail-sales report and climbed from 4.06 per cent to 4.10 per cent on Wednesday.

Higher yields can crimp profits for companies, while also making investors less willing to pay high prices for stocks.

Higher yields hurt all kinds of investments, and high-growth stocks tend to be some of the hardest hit. Drops of 2 per cent for Tesla and 0.9 per cent for Amazon were among the heaviest weights on the S and P 500. The smaller companies in the Russell 2000 index also slumped as much as 1.5 per cent before paring their loss to 0.7 per cent.

The yield on the two-year Treasury, which more closely tracks expectations for the Fed, also jumped. It climbed from 4.22 per cent to 4.34 per cent on Wednesday as traders trimmed their expectations for the Fed's first rate cut to arrive in March.

Traders are now betting on a less than 60 per cent probability of that, down from roughly 70 per cent a month earlier, according to data from CME Group.

A top Fed official, Gov. Christopher Waller, said on Tuesday that the central bank could take its time before its next move on rates given how resilient the economy has remained.

“These comments leave a rate cut as early as March on the table but also indicate that such a move is not a done deal,” according to economists at Deutsche Bank led by Amy Yang.

On Wednesday, the head of the European Central Bank warned in a speech about the risks of cutting rates too soon.

Interest rates are one of the main levers that set stock prices. The other is corporate profits, and several companies reported weaker results Wednesday than analysts expected, including US Bancorp and Big 5 Sporting Goods.

Charles Schwab reported stronger profit for the latest quarter than analysts expected, but its stock still fell 1.3 per cent. Its revenue fell short of estimates, and analysts said its better-than-expected earnings were likely due in part to easier tax rates.

Spirit Airlines was under heavy pressure again and sank 22.5 per cent. Its stock nearly halved the day before, after a US judge blocked its purchase by JetBlue Airways out of fear that it would lead to higher airfares. JetBlue lost 8.7 per cent.

In energy trading, benchmark US crude rose 20 cents to USD 72.76 a barrel. Brent crude, the international standard, stood unchanged at USD 77.88 a barrel.

In currency trading, the US dollar inched down to 148.03 Japanese yen from 148.11 yen. The euro cost USD 1.0894, up from USD 1.0886.