Hong Kong’s Hang Seng Index dropped 2.8% while the CSI 300 mainland Chinese benchmark lost 0.7%. The losses came after data showed that while China reached its 2023 economic goal, the country’s housing slump has worsened and domestic demand remained listless. 

Equities also fell from South Korea to Australia, with a regional gauge down nearly 1%. Japan was an exception, aided by a weaker yen. US stock futures also slid, while Treasuries were steady and the dollar gained. 

“China’s nominal GDP growth in 2023 is lower than the real GDP growth, due to the deflationary pressure. Labour market is weak,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Co. “This suggests China is likely growing below its potential growth.”

The weaker tone in Asia came after the S&P 500 lost 0.4% and Treasuries fell Tuesday, with yields on the 10-year note rising around 12 basis points.

The moves followed comments from Fed Governor Christopher Waller, who urged caution but said a rate cut this year was possible if inflation edges lower toward the central bank’s target. When the time is right, rates should be lowered “methodically and carefully”, Waller said during a virtual event on Tuesday.

“We view his comments emphasising no need to rush as indicating that he does not expect to push for a March cut,” said Krishna Guha, vice chairman at Evercore ISI. The comments were “consistent with our baseline of a first cut in May or June,” Guha said.

Reflecting a recalibration of Fed rate cut expectations, swaps market pricing for a rate cut in March inched lower to around 65% from 80% on Friday.

Mixed China data

Data released earlier on Wednesday showed China’s gross domestic product grew 5.2% last year, matching the rate that economists had expected and exceeding Beijing’s official target of “around 5%”. The latest figures for December continued to feed worries about the growth outlook: the decline in new-home prices accelerated last month, while retail sales grew slower than expected.

In commodities, oil declined as the drag from a stronger US dollar and broader risk-off tone offset concerns over escalating Middle East tensions, including continued attacks on ships in the Red Sea by Iran-backed Houthi rebels.

Earlier, the greenback staged its biggest rally in 10 months on the move in yields as expectations on rapid rate cuts by the Fed this year diminished.

In US earnings, Morgan Stanley slid amid a warning on lower margins in wealth, while Goldman Sachs Group Inc. rose as profit beat estimates. Boeing Co. sank on an analyst downgrade. Apple slipped as the US Supreme Court refused to consider its appeal in an antitrust suit challenging the App Store.

Elsewhere, gold was steady after a decline on Tuesday of more than 1% to trade around $2,028 per ounce and Bitcoin was steady above $43,000.