Most Asian stock markets kept to a tight range on Thursday as investors mulled over rising interest rates and a worsening economic outlook, although strong holiday spending figures from China supported local shares. China’s Shanghai Composite index rose 0.6%, while losses in the Shanghai Shenzhen CSI 300 index were limited as local markets reopened after the “Golden Week” holiday. Consumer and financial stocks saw the biggest gains for the day, as recent data showed that travel and shopping demand shot up during the holiday after the country withdrew its anti-COVID restrictions earlier this year. Hong Kong’s Hang Seng index was boosted by this optimism, rising 0.9% on strong gains in local stocks of Chinese-listed firms. The Hong Kong Monetary Authority also hiked interest rates in lockstep with the Fed on Thursday. But other data still pointed to a staggered economic recovery in China. A private survey showed that China’s manufacturing sector unexpectedly shrank in April, indicating that the country’s biggest economic drivers were still reeling from slow demand. This also spurred losses in Chinese blue-chip industrial stocks, which dragged the CSI 300 lower.

Broader Asian Markets Moved in a Flat-To-Low Range,

tracking a weak lead-in from Wall Street after the Federal Reserve hiked interest rates as expected. South Korea’s KOSPI fell 0.3%, while the Taiwan Weighted index rose 0.2%. Philippine stocks led gains across Southeast Asia with a 0.6% rise, while India’s Nifty 50 and BSE Sensex 30 indexes were flat in early trade. Australia’s ASX 200 index fell 0.1%, as strong retail sales and trade balance data this week indicated more headroom for the Reserve Bank to keep raising interest rates. While the Fed appeared to have tapered some of its hawkish language, pointing to a potential pause in its rate hike cycle, Fed Chair Jerome Powell reiterated that interest rates could still rise further if inflation remains stubborn. Powell also warned that U.S. economic growth was cooling rapidly, ramping up concerns over a potential recession this year. This warning dented sentiment towards risk-driven assets, while sending safe havens such as gold to record highs. Fed Fund futures prices show that markets are pricing in a 92% chance that the Fed will pause its rate hikes in June, according to the CME Fed Watch tool. But given that Powell downplayed any chances of a rate cut this year, high borrowing costs are likely to erode risk-driven assets in the remainder of the year.