Asian stocks skittish as early rate cut hopes wane, China rout deepens

Investing.com– Most Asian stocks retreated on Monday as strong labor market data and relatively hawkish comments from Federal Reserve Chair Jerome Powell saw traders further price out expectations of early interest rate cuts this year.

Pessimism over China added to the negative mood, as a showed that services sector activity in the country grew less than expected in January. This spurred a continued rout in local stocks, with the and indexes losing 1% and 2.4%, respectively.

Losses were driven chiefly by weakness in technology and property stocks, with both indexes trading at five and four-year lows. 

Chinese markets were now nursing an extended rout after vastly underperforming their global peers through 2023, amid persistent concerns over slowing economic growth in the country. Promises of more stimulus measures from the government offered limited support to sentiment. 

due later this week is expected to provide little cheer ahead of the Lunar New Year holiday. 

Most broader Asian markets fell, hit by a mix of concerns over China and higher-for-longer U.S. interest rates. Australia’s slid 0.9%, seeing some profit-taking after hitting a record high last week.

Data showed that Australia’s beat expectations in December, aided by some resilience in .

But investors were averse towards Australian stocks before a on Tuesday, where the RBA is widely expected to keep interest rates on hold. But the bank is also expected signal higher-for-longer rates in the face of sticky inflation.

South Korea’s slid 1.3% after the country’s financial watchdog launched a crackdown against what it deemed as irresponsible risk management.

Hong Kong’s index shed 0.7%, while futures for India’s index pointed to a weak open on pressure from heavyweight tech stocks.

Rate cut bets dim after nonfarm payrolls shock, Powell comments

Risk sentiment was rattled by hawkish comments from on late-Sunday. Powell said in an interview with CBS 60 minutes that the central bank would take a “prudent” approach to cutting interest rates, with recent resilience in the economy giving the central bank more headroom to keep rates on hold.

Powell’s comments come in the wake of a substantially stronger-than-expected report for January, which showed that the labor market remained rboust. The reading saw traders further trim bets on early rate cuts by the Fed. 

The central bank signaled last week that it had no plans to begin aggressively cutting interest rates this year, given that the U.S. economy remained resilient, and inflation remained high.

Higher-for-longer U.S. rates bode poorly for Asian markets, given that they diminish the appeal of high-yield, risk-heavy assets. 

Still, Powell said that most members of the rate-setting committee still saw some reductions in interest rates later this year.

Japan’s was among the few gainers in Asia, aided by data which showed the country’s services sector grew more than expected in January.

The services sector has consistently underpinned the Japanese economy, even as manufacturing activity contracted over the past year. 

The Nikkei 225 remained within sight of a 34-year high, after having largely outperformed its global peers through 2023 and early-2024.