Asian shares lower as strong data hit hopes for dovish Fed

BANGKOK: Stocks were mostly lower in Asia on Tuesday after Wall Street pulled back as surprisingly strong economic reports highlighted the difficulty of the Federal Reserve's fight against inflation.

Tokyo rose while other regional markets declined. US futures gained and oil prices also advanced.

Adding to worries over the potential for recession, Fitch Ratings revised its forecasts for world economic growth downward on Tuesday to reflect the Fed and other central banks' interest rate hikes.

Its Global Economic Outlook report estimated global growth at 1.4 per cent in 2023, revised down from 1.7 per cent in its September forecast. It put US growth in 2023 at 0.2 per cent, down from 0.5 per cent, as the pace of monetary policy tightening increases.

China's growth forecast was cut to a 4.1 per cent annual pace from 4.5 per cent.

Markets have been lifted by expectations China will press ahead with easing its stringent pandemic restrictions, relieving pressures on trade, manufacturing and consumer spending.

But investors are also eyeing the Fed, hoping it might slow the pace of interest rate hikes aimed at curbing stubbornly high inflation.

The services sector, which makes up the biggest part of the US economy, showed surprising growth in November, the Institute for Supply Management reported Monday. Business orders at US factories and orders for durable goods in October also rose more than expected, other reports said.

That news is positive for the broader economy, but it complicates the Fed's fight against inflation because it likely means the central bank will have to keep raising interest rates to bring down price pressures.

"Inflation will likely prove to be stickier and with the service part of the economy refusing to weaken. The risks that the Fed might need to do more remain elevated,'' Edward Moya of Oanda said in a statement.

The Fed is meeting next week and is expected to raise interest rates by a half-percentage point, which would mark an easing of sorts from a steady stream of three-quarters of a percentage point rate increases.

It has raised its benchmark rate six times since March, driving it to a range of 3.75 per cent to 4 per cent, the highest in 15 years. Wall Street expects the benchmark rate to reach a peak range of 5 per cent to 5.25 per cent by the middle of 2023.

The aim is to cool growth without slamming on the brakes and causing a recession that would cascade through the global economy, slowing trade and consumer spending.

Russia's ongoing invasion of Ukraine continues agitating an already volatile global energy market. US crude oil prices bounced around before settling 3.8 per cent lower after a group of world leaders agreed to a boycott of most Russian oil. They also committed to a price cap of USD 60 per barrel on Russian exports.

In Asian trading, Hong Kong's Hang Seng fell 1.1 per cent to 19,300.90 and the Kospi in South Korea fell 0.6 per cent to 2,404.39. The Shanghai Composite index edged 0.1 per cent lower to 3,209.27.

Tokyo's Nikkei 225 index picked up 0.3 per cent to 27,909.65. Shares also fell in Bangkok and Thailand.

The S&P 500 fell 1.8 per cent Monday to 3,998.84. The Dow Jones Industrial Average lost 1.4 per cent to 33,947.10 and the tech-heavy Nasdaq gave back 1.9 per cent, closing at 11,239.94. Small-company stocks fell even more, sending the Russell 2000 index 2.8 per cent lower to 1,840.22.

Oil and gas company stocks fell amid a broad pullback in energy prices, including an 11.2 per cent slump in natural gas. Exxon Mobil fell 2.7 per cent.

All told, roughly 95 per cent of the stocks in the benchmark S&P 500 index were in the red, with technology companies, banks and retailers among the biggest weights on the market. Chipmaker Nvidia fell 1.6 per cent, Bank of America slid 4.5 per cent and Amazon dropped 3.3 per cent.

Bond yields mostly climbed. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.59 per cent from 3.49 per cent late Friday.

Wall Street will get a weekly update on unemployment claims Thursday. November's monthly report on producer prices is due Friday.

In other trading Tuesday, US benchmark crude oil gained 63 cents to USD 77.56 per barrel in electronic trading on the New York Mercantile Exchange. It lost USD 3.05 to USD 76.93 per barrel.

Brent crude, the pricing basis for international trading, advanced 57 cents to USD 83.25 per barrel.

The US dollar rose to 136.88 Japanese yen from 136.71 yen late Monday. The euro climbed to USD 1.0497 from USD 1.0491.