Asia: Stocks retreat amid US rate hike bets, Japan GDP data

[SINGAPORE] Asian stocks fell for the first time this week, as US economic reports bolstered the case for higher interest rates while investors weighed data showing Japan's economy grew more than expected.

The MSCI Asia Pacific Index slipped 0.2 per cent to 127.36 as of 9:01 am in Tokyo. Global equities have struggled to extend gains since reaching a four-month high on April 20 as investors scrutinize US data for clues to the timing of the Fed's next policy move. In Japan, data Wednesday showed gross domestic product expanded by an annualized 1.7 per cent in the first quarter, beating economists' estimates for 0.3 per cent growth.

"Markets will be increasingly volatile as investors guess the Fed's next move," Michael McCarthy, chief market strategist at CMC Markets in Sydney, said by phone.

"The Fed wants to normalize rates because if another crisis emerges, they've got very little room to move. Obviously they are aware of the risks and the last thing they want to do is derail the US economy." Atlanta Fed President Dennis Lockhart and San Francisco's John Williams said two rate increases this year may be warranted, while Dallas Fed President Robert Kaplan said a hike may come soon. Futures traders pushed the odds for a June increase to 12 per cent, from 4 per cent on Monday.

Japan's Topix index added 0.1 per cent. The nation's GDP growth of 1.7 per cent in the three months ended March 31 followed a revised 1.7 per cent contraction in the previous quarter. There was little in the figures to indicate that Japan is pulling free of the cycle of expansion and contraction that's plagued the economy for decades, despite more than three years of Abenomics and record monetary stimulus from the central bank.

South Korea's Kospi index slid 0.3 per cent. Australia's S&P/ASX 200 Index declined 0.5 per cent. New Zealand's S&P/NZX 50 Index lost 0.3 per cent. Markets in China and Hong Kong have yet to start trading.

Futures on the China A50 Index dropped 0.6 per cent in their most recent trading, while those on the Hang Seng Index fell 0.5 per cent.

Chinese stocks traded in Hong Kong rose on Tuesday by the most in a month as President Xi Jinping vowed to press ahead with plans to cut capacity at state-owned enterprises.

The Hang Seng China Enterprises Index of mainland companies traded in the city increased 1.4 per cent. The Shanghai Composite Index finished 0.3 per cent lower.

Futures on the S&P 500 Index climbed 0.1 per cent. The US equity benchmark index declined 0.9 per cent on Tuesday as consumer-staples companies plunged and utility shares declined as rising Treasury yields made their dividends less attractive.

West Texas Intermediate crude rose as much as 0.6 per cent to US$48.58 a barrel in early Wednesday trading, extending a six- month high. Oil headed for a third day of advance before the release of data that's projected to show US stockpiles dropped.

BLOOMBERG