SYDNEY : A rally in Asian shares sputtered on Thursday, pressured by a pullback in Chinese stocks and higher U.S. yields amid fears that global central banks would keep raising interest rates to combat sticky inflation.
Investors' enthusiasm has faded somewhat over China's economic reopening after Beijing dismantled its strict COVID-19 controls in December, as analysts look for more evidence to gauge the pace of economic recovery. "Financial markets are caught between the two narratives of a softer landing, helped by China's reopening, and sticky inflation keeping policy rates higher for longer," said Chris Turner, global head of markets at ING.Overnight, both bonds and shares took a battering, as inflation indicators from Germany and the United States reinforced expectations that interest rates would go higher and stay there for longer.
"The PMI manufacturing data provides a mixed message for global risk appetite, with improving growth trends positive, but lower output prices stalling out," said Alan Ruskin, macro strategist at Deutsche Bank. Investors still mostly foresee the Fed raising rates by 25 basis points at its next meeting later this month, but expectations of a larger 50 basis points hike have increased. The probability that the Fed's policy rate, currently set in the 4.5 per cent to 4.75 per cent range, could peak above 5.5 per cent range stood at 53 per cent, compared with 41.5 per cent on Feb. 28, according to CME Fed tool.