(Bloomberg) -- Asian equities were mixed Thursday after US stocks and Treasuries fell as strong retail sales data cast fresh doubt on the prospect the Federal Reserve will cut rates in March.
Australian and mainland China shares slipped, while Japanese and South Korean stocks edged higher. US futures traded within a narrow range early Thursday after the S&P 500 and Nasdaq 100 both slipped 0.6% Wednesday.
Further declines for Chinese stocks followed the worst day for the CSI 300 index since August on Wednesday, which weighed on emerging markets. Heavy selling in the world’s second largest economy followed underwhelming economic reports and signs from Premier Li Qiang that the country will avoid huge stimulus to revive growth.
The muted outlook for China and the repricing of expected Fed cuts have wiped 2% from global stocks this year. Recent weakness in the yen against the backdrop of strength in the greenback has nudged the Japanese currency within arm’s reach of 150 per dollar.
Treasuries steadied after further selling on Wednesday, concentrated on the short end of the curve. The policy-sensitive two-year yield rose 14 basis points, its biggest one-day increase since June. The 10-year rose four basis points to above 4.1% for the first time in more than a month. Australian and New Zealand yields also traded higher Thursday.
Jason Draho at UBS Global Wealth Management says that it’s unlikely to be a smooth path for markets.
“Investors will be debating the type of soft landing, stage of the cycle, and the macro regime, and the wide dispersion of views now could quickly evolve based on new data,” Draho said. “That could lead to quick and dramatic market pivots to price in shifting consensus views.”
The drop in bond prices reflected a shift in investor expectations for a Fed rate cut in March. Swaps pricing shows the chances of such a cut slipped below 60% on Wednesday for the first time since the middle of December. That’s down from 80% on Friday.
The decline followed comments from Fed officials this week pushing back against market expectations for imminent cuts and stronger-than-expected retail sales data Wednesday. Bumper consumer spending helped propel the economy in recent weeks, the Fed said in its Beige Book survey.
The dollar declined Thursday after a rally in the previous session pushed an index of the greenback to a one-month high. Elsewhere, the Aussie dollar reversed earlier losses as data showed employment surprisingly down in December, snapping four months of gains.
The selling was also felt in Europe with the region-wide Euro Stoxx 50 slipping 1% on Wednesday, as investors digested comments from European Central Bank President that it will likely trim rates in the middle of the year. A slide in UK bonds after data showed inflation picked up also prompted traders to pare bets on Bank of England easing.
Elsewhere in corporate news, operators of Boeing Co.’s 737 Max 9 have completed inspections on an initial batch of 40 planes, a key step to eventually end the grounding of the aircraft. Meanwhile, Apple Inc. has to stop selling its Series 9 and Ultra 2 smartwatches with a blood oxygen feature in the US, after suffering another legal setback in a patent dispute.
Gold was slightly higher after falling 1% Wednesday to trade around $2,010 per ounce. West Texas Intermediate inched higher toward $73 per barrel early Thursday after rising 0.2% Wednesday.