Asian stocks and currencies were weaker on Tuesday even as China’s economy grew at a faster-than-expected pace in the first quarter, while Indonesia’s rupiah depreciated ahead of an interest rate decision by its central bank.
China’s economy expanded at an annual rate of 4.5% in the first quarter, outpacing an expected 4.0% growth, as the end of strict COVID-19 curbs lifted businesses and consumers.
Separate data on March activity showed China’s retail sales growth beat expectations and hit a near two-year high, while factory output growth also sped up.
Investors have been closely watching first quarter data for clues on the strength of the recovery after Beijing abandoned its zero-COVID policy in December and eased a three-year crackdown on tech firms and property.
Markets in Asia, however, remained largely weaker. Shares in Shanghai were flat, while equities in Singapore, Manila and Bangkok slipped between 0.5% and 0.6%.
In currency markets, Malaysia’s ringgit, the Philippine peso and South Korean won fell against the dollar, while China’s yuan was up 0.1%.
“The (China) data was certainly stronger than expected, but there are still question marks on whether the growth momentum can be sustained,” said Mitul Kotecha, head of emerging markets strategy at TD Securities.
The dollar eased after rallying overnight as strong US economic data reinforced expectations that the Federal Reserve would hike interest rates again in May.
Asian FX slip on rising expectations for Fed rate hikes
“The reason we are seeing weakness in the markets is very much about the Fed rhetoric, which is probably the overarching driver at the moment in the region …despite the Chinese data,” Kotecha said.
Futures markets are currently pricing in a nearly 86% chance of the Fed raising interest rates by 25 basis points at its next meeting in May, up from 81.4% on Monday.
The Indonesian rupiah weakened 0.5% ahead of a policy decision by the country’s central bank due at 0700 GMT on Tuesday.
Bank Indonesia is expected to keep its key interest rate unchanged at 5.75% for a third consecutive meeting, according to a Reuters Poll.
Emerging markets such as South Korea, Singapore and India have also recently paused sustained policy tightening campaigns as growth concerns take precedence over high inflation.
Shares in Jakarta were up 0.6%.
Highlights
** Yield on Indonesia’s benchmark 10-year note rises to 6.668%
** The Philippine peso hits lowest level since Jan. 4
** Malaysian ringgit hits 4-week low