Australia

Australian shares are expected to fall today following a dip on Wall Street. After December inflation data revealed a concerning decline in retail sales, fears of an upcoming recession grew.

ASX futures were 23 points or 0.31% lower as of 8:00am on Thursday, pointing to a slip at the open.

US stocks fell today after a fresh batch of economic data offered worrying signs of how the economy is weathering the Federal Reserve's tightening campaign.

The S&P 500 shed 1.56%, with each of its 11 sectors in the red. The Dow Jones Industrial Average was 1.76%, or about 598 points, lower. The Nasdaq Composite Index lost 1.11%. All three major indices gave up gains from early trading.

Wednesday morning data showed retail sales fell 1.1% in December, with higher interest rates and inflation hurting spending on vehicles, gasoline, and furniture. Wholesale price inflation fell to its slowest pace since March 2021, brightening the price outlook for consumers and policymakers but casting a cloud over hopes for a "soft landing.”

In commodity markets, Brent crude oil lost 1.33% to $US84.78 a barrel and gold edged down 0.27% to US$1,903.55.

In local bond markets, the yield on Australian 2 Year government bonds fell to 3.09% while the 10 Year decreased to 3.54%. In the US, the yield on 2 Year Treasury notes dropped to 4.07% and the yield on 10 Year Treasury notes slipped to 3.37%.

The Australian dollar edged down to 69.42 US cents from its previous close of 69.84. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, increased to 95.29.

Asia

Chinese shares ended mixed as Tuesday's better-than-expected Q4 GDP data raised expectations that the central bank would slow the pace of its policy easing. The market was supported by China Vice-Premier Liu's comments at the World Economic Forum overnight suggesting the economy would return to pre-pandemic growth this year. Software and telecom companies led the gainers with Beijing Kingsoft Office Software up 2.1% and Hundsun Technologies rising 4.6%. Among the laggards were consumption-related companies and property stocks. China Tourism Group Duty Free Corp. dropped 0.7% and China Vanke was 1.4% lower. The Shanghai Composite Index ended flat at 3224.41, the Shenzhen Composite Index rose 0.2% and the ChiNext Price Index slipped 0.1%.

Hong Kong's benchmark Hang Seng Index closed 0.5% higher at 21678.00, as investors digested China's Q4 GDP data. The impact of surging Covid infections after the reopening was relatively short-lived and not as bad as expected, CICC analysts said in a note to clients. Chinese Vice Premier Liu He's comments at the World Economic Forum also helped boost investor confidence. Consumption-related and property stocks led the declines with Budweiser Brewing Co. 2.2% lower and Country Garden Holdings falling 6.4%. Top performers included NetEase, which rose 6.5%, after the company rejected a proposal to extend long-time partnership with U.S. video game producer Activision Blizzard.

Japanese stocks ended higher, led by gains in electronics and pharmaceutical shares, after the Bank of Japan kept its yield control unchanged, dashing speculation for higher rates. Terumo gained 6.3% and Chugai Pharmaceutical climbed 5.3%. The Nikkei Stock Average rose 2.5% to 26791.12.

Indian shares ended higher, led by gains in financial and tech stocks, as hopes continued for earnings growth and concerns eased about domestic inflation. The benchmark Sensex index closed 0.64% higher at 61045.74.

Europe

European markets ended a volatile session with mixed results after Wall Street opened lower. The pan-European Stoxx Europe 600 rose 0.18% and the French CAC 40 managed a 0.09% gain. Germany’s DAX index lost 0.04%.

Great Britain’s FTSE 100 closed 0.26% lower today as U.K. inflation continued its decline in December while still remaining in double-digit growth, despite rising interest rates and slowing economic activity. The British index once again underperformed after the latest U.K. inflation data served to put upward pressure on the pound, CMC Markets UK's Chief Market Analyst Michael Hewson said in a note.

"On the plus side for the UK benchmark, basic resource stocks are leading the way higher, as copper prices rise to their highest levels since June last year, pulling the likes of Glencore, Antofagasta and Anglo American higher," Hewson said. Rising food price inflation, however, appeared to be weighing on consumer staples and retailers, such as Unilever, Reckitt Benckiser, Haleon, JD Sports and Next, he added.

North America

US stocks fell today after a fresh batch of economic data offered worrying signs of how the economy is weathering the Federal Reserve's tightening campaign.

The S&P 500 shed 1.56%, with each of its 11 sectors in the red. The Dow Jones Industrial Average was 1.76%, or about 598 points, lower. The Nasdaq Composite Index lost 1.11%. All three major indices gave up gains from early trading.

Wednesday morning data showed retail sales fell 1.1% in December, with higher interest rates and inflation hurting spending on vehicles, gasoline, and furniture. Wholesale price inflation fell to its slowest pace since March 2021, brightening the price outlook for consumers and policymakers but casting a cloud over hopes for a "soft landing.”

"This was good news for the Fed," said Sam Millette, fixed income strategist for Commonwealth Financial Network. "The slowdown in demand and slowing producer inflation toward year-end is a positive sign that the Fed's more restrictive monetary policy is having a real impact in combating inflation."

Derivatives traders are betting that slowing economic data solidifies odds that Fed officials will opt for a relatively small quarter-point rate increase at their upcoming meeting.

Despite positive news on the inflation front and the likelihood of a slower pace of rate increases, investors grew increasingly worried about recession risk as trading continued. It remains to be seen if the Fed's rate increases will throw the economy into a deep downturn, especially as the full effects of tighter policy have yet to fully filter into the economy.

"Markets aren't remotely priced for the coming recession," said Trevor Greetham, head of multi-asset at Royal London Asset Management. "We're in this sort of interregnum between the interest rate-driven bear market of 2022 and the earnings-driven bear market of 2023."
A steep slowdown could pinch companies' earnings and weigh on stocks in the coming months even if the Fed pauses interest-rate increases, he added.

Still, Mr. Greetham said RLAM's multi-asset funds aren't battening down the hatches for a recession just yet. They are tilted toward shares in defensive sectors such as consumer staples, and stocks in emerging markets that stand to benefit from China's reopening. He said the firm will start to snap up government bonds and sell stocks when it thinks a downturn is imminent.

Canadian stocks also performed poorly today, with the S&P/TSX Composite Index slipping 0.40% or 81.23 points.