Asian stocks mixed, dollar finds footing as traders assess Fed outlook

Asian stocks were mixed on Thursday while the US dollar stabilized and Treasury yields remained depressed as investors tried to assess the outlook for Federal Reserve policy following stronger-than-expected retail sales data.

Renewed expectations the Fed will keep hiking rates have increased concerns about the economic outlook. The US Treasury yield curve remained deeply inverted in Tokyo trading, suggesting investors are bracing for recession.

Rhetoric from Fed officials has remained hawkish this week, as they sought to rein in recent market optimism that a pivot in the central bank's hawkish rate-hiking campaign might be close following cooler consumer and producer price data.

Fed Governor Christopher Waller said on Wednesday there is still a ways to go on rates, while San Francisco Fed President Mary Daly told CNBC pausing rate hikes is not yet part of the discussion.

The US dollar was largely flat against a basket of major peers, finding its feet following a slide to a three-month trough earlier in the week. Safe-haven support it garnered early Wednesday from a deadly explosion in Poland faded, with NATO now saying the missile was a stray fired by Ukraine's air defences and not a Russian strike.

"Fed speakers were clear that a pause is not imminent," Ted Nugent, a markets economist at National Australia Bank, wrote in a client note.

"Like the resilient spending numbers, (that) gave little succour for anyone looking for an imminent pivot," resulting in "a more cautious tone in markets," he said.

Japan's Nikkei .N225 was little changed, recovering from early, Wall Street-inspired losses, while the broader Topix index was up 0.4%.

However, Hong Kong's Hang Seng tumbled 1.35%, with its tech stocks plunging 2.91%.

Mainland Chinese shares also declined, with blue chips falling 0.57%.

Australia's benchmark added 0.19%. South Korea's Kospi dropped 0.58%.

MSCI's broadest index of Asia-Pacific shares outside Japan slid 0.77%.

US e-mini stock futures EScv1, though, indicated a 0.3% rebound at the reopen following the S&P 500's 0.8% overnight retreat.

US 10-year Treasury yields hovered near the six-week low at 3.671% hit overnight in Tokyo trading, while the two-year yield US2YT=RR continued to consolidate near its lowest level since 28 Oct at around 4.38%.

The dollar index - which measures the currency against six major counterparts - added 0.07% to 106.34, stabilizing following its slide to as low as 105.30 on Tuesday following the release of producer price inflation numbers.

Money markets currently give 93% odds that the Fed will slow to a half-point rate hike on 14 Dec, with just 7% probability of another 75 basis point increase. However, traders still see the terminal rate as close to 5% by next summer from the currency policy rate of 3.75-4%.

Gold was slightly lower at $1,772.62 an ounce after safe-haven demand ebbed.

Crude oil continued to decline in Asia after settling more than a dollar lower overnight after Russian oil shipments via the Druzhba pipeline to Hungary restarted and as rising Covid-19 cases in China weighed on sentiment.