Asian stocks are mixed after Wall St’s biggest retreat in a year

TOKYO — Asian shares traded mixed on Thursday as investors turned cautious after Wall Street’s biggest pullback in a year.

Shares fell in Tokyo but rose in Seoul and Sydney, where they recouped earlier losses by late morning. Hong Kong shares fell slightly, while Shanghai shares were little changed.

Japan’s benchmark Nikkei 225 index fell 1.5% to 26,380.26. Australia’s S&P/ASX 200 rose 0.6% to 7,437.10. South Korea’s Kospi added 0.3% to 2,376.08. Hong Kong’s Hang Seng was little changed at 21,672.07, while the Shanghai Composite rose 0.1% to 3,228.60.

In positive news, data from the Japan National Tourism Organization showed that tourist and other types of travel to Japan from Asia outside of China rebounded last month.

According to the data, the number of visitors in December was 1.37 million people, which is about the same level as in December 2020. But it will take longer for such numbers to return to pre-Covid-19 levels, the SMBC Nikko report said.

“On the macro front, uncertainty remains regarding the outlook for the global economy. A spate of disappointing US data releases and hawkish rhetoric from the Fed are also contributing to risk aversion in the markets,” said Anderson Alves, trader at ActivTrades.

The S&P 500 fell 1.6% to 3,928.86 after rising 0.6% early. The Dow Jones Industrial Average lost 1.8% to 33,296.96, while the Nasdaq Composite fell 1.2%, ending a seven-day winning streak at 10,957.86. The losses are a reversal for the market, which started the year with a two-week rally.

The Russell 2000 fell 1.6% to 1,854.36.

The selloff came as new economic data showed the economy is slowing as inflation cools, raising concerns about the possibility of a recession. Meanwhile, a key Federal Reserve official said interest rates should be higher than the central bank had previously signaled.

Americans cut their spending at retailers more than expected last month, the government said, for the second straight month. Separately, the Federal Reserve said U.S. industrial production, which covers manufacturing, mining and utilities, fell more than economists expected in December.

The government also reported more encouraging data on inflation. Wholesale prices rose 6.2% in December from a year earlier, the sixth slowdown to measure prices before they are passed on to consumers.

Investors hoped that easing inflation and slowing economic growth could affect the Federal Reserve’s stance on interest rates. The central bank has been raising rates aggressively through 2022 to stem runaway inflation, but that has hurt stock and bond prices and risks going too far and triggering a recession.

According to Loretta Mester, president of the Federal Reserve Bank of Cleveland, while there is growing evidence that high inflation is finally easing, further rate hikes are still needed.

“I still see a lot of risk in tightening too little,” Mester told The Associated Press on Tuesday.

Mester emphasized her belief that the Fed’s key rate should rise “slightly” above the range of 5% to 5.25% that policymakers have jointly forecast for the end of this year. It raised its key overnight rate to a range of 4.25% to 4.50% from around zero a year ago. The Fed will announce its next interest rate decision on February 1. Investors mostly forecast a rise of just 0.25 percentage point next month, compared with a half-point increase in December and four previous hikes of 0.75 percentage points.

The broader economic picture is still not clear enough to see whether the Fed’s fight against inflation is working well enough to avoid a recession. Several major banks are predicting at least a mild recession at some point in 2023.

Technology stocks were among the market’s biggest drags, with Microsoft down 1.9% after the tech titan joined others in its industry in announcing layoffs. The software giant is cutting 10,000 employees, or nearly 5% of its workforce.

Investors looked to the latest batch of corporate earnings to gain more insight into how inflation and consumer spending are impacting earnings and earnings. PNC Financial Services Group fell 6% after reporting weak earnings.

Benchmark U.S. crude fell $1.25 to $78.23 a barrel in electronic trading on the New York Mercantile Exchange on Thursday. It fell 70 cents to $79.48 a barrel on Wednesday.

Brent crude, the international benchmark, fell $1.10 to $83.88 a barrel.

In foreign exchange, the US dollar fell to 128.00 Japanese yen from 128.87 yen. The euro was at $1.0799, little changed from $1.0796.

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

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