Asian Stocks Decline Ahead of Fed Rate Decision

Most Asian stocks fell on Monday ahead of the U.S. Federal Reserve interest rate decision this week, while Chinese shares declined as weaker-than-expected retail sales data raised fresh concerns about the world’s second-largest economy's recovery pace.

The U.S. Fed is set to decide its key interest rates on Wednesday, where a 25 basis points cut is largely priced in. However, markets were cautious about the Fed’s long-term rate trajectory as inflation has remained a major concern.

Chinese Shares Reverse Course After Retail Sales Data

China’s Shanghai Composite erased early gains to inch 0.1% lower, while the Shanghai Shenzhen CSI 300 index declined 0.4%. Hong Kong’s Hang Seng index fell 0.8%.

Chinese industrial production grew as expected in November due to recent stimulus measures from Beijing supporting business activity. However, retail sales fell short of forecasts, reflecting ongoing weakness in consumer spending despite policy support. The soft retail numbers dampened sentiment across Asian markets, reaffirming fears of uneven recovery in China’s economy while reinforcing a cautious tone globally as markets await clarity from the Federal Reserve.

Asia Stocks Down Ahead of Fed, BOJ Meeting

Japan’s Nikkei 225 was largely unchanged, and TOPIX inched slightly lower ahead of the Bank of Japan’s policy meeting due next week. The BOJ is expected to maintain its current interest rates this week as officials seek more time to evaluate global risks and the outlook for wage growth in 2024, in contrast to earlier expectations of a hike.

Other data showed that Japan's factory activity shrank for the sixth straight month due to lackluster demand while the service sector extended gains in December.

Shares in South Korea’s KOSPI index were largely unchanged after the country’s president Yoon Suk Yeol was impeached in a second vote by the opposition-led parliament on Saturday, over his attempt to impose martial law in the country. South Korea's finance ministry vowed to continue to swiftly deploy market stabilizing measures as needed to support the economy after the impeachment.

Globally, investors were cautious ahead of the Fed meeting. The Fed is expected to lower interest rates by 25 basis points, however, sticky inflation figures released last week have clouded the central bank’s long-term rate outlook.

Elsewhere, Australia’s S&P/ASX 200 lost 0.3%, while Indonesia’s Jakarta Stock Exchange Composite Index dropped 0.9%. India’s Nifty 50 Futures indicated a slight rise at open on Monday, while Malaysia’s FTSE Malaysia KLCI index edged up 0.2%.