Asian benchmarks mostly decline amid lingering China worries

TOKYO (AP) — Asian shares mostly declined Thursday amid concerns about the impact of China’s “zero-COVID” strategy mixed with hopes for economic activity and tourism returning to normal.

Benchmarks fell in Tokyo, Seoul, Hong Kong and Shanghai, while gaining in Sydney. Oil prices fell.

Market watchers noted worries about how the Federal Reserve might not ease on its aggressive interest rate hikes, which are aimed at curbing inflation pressures. Much of the market’s prior rally on Wall Street was due to such hopes, including easing inflation.

“Markets are still unconvinced that the U.S. Fed will opt for lower magnitude rate hikes as incoming data sent mixed signals,” said Venkateswara Lavanya at Mizuho Bank.

U.S. retail data has shown improvement, while industrial production has dropped, highlighting the resilience of the service sector, as opposed to weakening external demand.

The Fed has been raising interest rates in an effort to slow the economy and tame the hottest inflation in decades. Wall Street has been worried it could hit the brakes too hard and bring on a recession.

Japan’s benchmark Nikkei 225 shed 0.1% in morning trading to 27,990.62. Australia’s S&P/ASX 200 gained 0.2% to 7,138.20, after government data showed that the employment situation had improved in October from September.

South Korea’s Kospi slipped 0.6% to 2,461.74. Hong Kong’s Hang Seng dropped nearly 0.9% to 18,101.00, while the Shanghai Composite fell 0.5% to 3,105.87.

China is maintaining its “zero-COVID” approach of mass testing many people alongside localized lockdowns and quarantines to eliminate the coronavirus entirely. Such restrictions have caused a supply crunch for some of Asia’s biggest manufacturers, denting economic growth.

Elsewhere, the lifting of pandemic restrictions have fueled hopes of greater consumer spending and tourism revenue.

On Wall Street, retailers and technology companies led a broad slide. The S&P 500 fell 0.8%, wiping out most of its gains from a day earlier. The Dow Jones Industrial Average fell 0.1% and the Nasdaq lost 1.5%.

Discouraging quarterly updates from Target and other retailers put investors in a selling mood, despite a report showing that U.S. retail sales remained strong last month.

Target slumped 13.1% after cutting its forecasts for the holiday season following a surprisingly big drop in its third-quarter profits. The retailer also said its sales slowed sharply in recent weeks.

“I think the market might be saying the broader data that we have is OK, but what Target is saying is a little more forward-looking in terms of what they expect for the holiday season, and that might not be so good,” said Willie Delwiche, investment strategist at All Star Charts.

Other retailers also helped drag the market lower. Advance Auto Parts fell 15.1% after reporting weak financial results. Best Buy slumped 8.6%. Macy’s, which reports its financial results on Thursday, fell 8.1%.

All told, the S&P 500 fell 32.94 points to 3,958.79. The Dow slid 39.09 points to 33,553.83. The tech-heavy Nasdaq dropped 174.75 points to 11,183.66.

Smaller company stocks also lost ground. The Russell 2000 index fell 36.04 points, or 1.9%, to 1,853.17.

The latest government report on retail sales for October shows that consumer spending remains strong, though it’s unclear whether that’s because of more purchases or higher prices.

Strong consumer spending is typically a good sign for the economy, but it could make the Fed’s strategy of cooling the economy more difficult.

“The better-than-expected retail sales results don’t bolster the case that the Fed” can ease up on its campaign to slow the economy with high interest rates, said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.

He said resilient consumer spending could improve the possibility that the Fed manages to pull off a so-called “soft landing” with its strategy. That would involve taming inflation without throwing the economy into a recession, or at least avoiding a damaging recession.

Bond yields were mixed. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.69% from 3.78% from late Tuesday. The yield on the two-year Treasury rose to 4.37% from 4.35% from late Tuesday.

Also hanging over market sentiments, especially the energy sector, is the war in Ukraine. Any worsening could cause spikes in prices for oil, gas and other commodities that the region produces.

In energy trading, benchmark U.S. crude lost 67 cents to $84.92 a barrel. U.S. crude oil prices initially rose, before settling 1.5% lower Wednesday. Brent crude, the international standard, fell 62 cents to $92.24 a barrel.

In currency trading, the U.S. dollar inched down to 139.47 Japanese yen from 139.51 yen. The euro cost $1.0389, down from $1.0396.

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AP Business Writers Damian J. Troise and Alex Veiga contributed to this report.

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Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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