(Bloomberg) — Asian shares halted a three-day rally and bonds fell on Tuesday in a sign of sagging risk sentiment that supported the dollar.
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The MSCI Asia Pacific Index slid 1.1% as benchmarks in Japan, South Korea, Australia all declined with Hang Seng headed for the worst day in about two months. Contracts for European stocks edged lower, extending a decline in the prior session, after European Central Bank officials tamped down rapid rate cut expectations. US equity futures also slipped.
Gold edged lower, while Treasuries fell across the curve in the first trading day since Friday. 10-year yields rose around six basis points, while those for policy-sensitive 2-year debt advanced by the same amount.
The rise in US yields helped support the greenback, which strengthened for a third session against major currencies. Traders now look to Federal Reserve Governor Christopher Waller’s speech later Tuesday on whether there will be more pushback against bets of a rate cut in March.
“It might just be the market is finally out of hungover mood and having their clarity moment” that the Fed might not be cutting rates at all this year, said Mingze Wu, a currency trader at Stonex Financial Pte. in Singapore.
Oil prices were steady as continued Houthi attacks on ships in the Red Sea that are keeping tensions high in the Middle East were offset by a shaky global economic outlook and gains in the dollar. Global benchmark Brent held above $78 a barrel, while West Texas Intermediate traded below $73.
“Despite the conflict leading to the suspension of certain Red Sea routes, global oil supplies have not been significantly impacted,” Saqib Iqbal, an analyst at Trading.Biz, said in a note. “The focus shifts to key economic data releases from the US and China, providing valuable insights into potential demand.”
In Germany, bunds fell Monday in a decline that highlights a chasm between market expectations of ECB rate cuts and a less optimistic outlook among economists. The market is pricing in around six cuts, while economists polled by Bloomberg see four 25 basis point reductions as a more realistic scenario.
ECB Governing Council member Robert Holzmann indicated cuts this year were not assured given lingering inflation and geopolitical risks, in Monday comments. The sentiments echo prior comments from ECB President Christine Lagarde in warning that it’s too early to talk about trimming borrowing costs.
READ: A Pessimist’s Guide to Global Economic Risks in 2024
China Focus
Major Chinese lender Ping An Bank Co. has put 41 firms on a list of developers eligible for its funding support, according to people familiar with the matter, the latest move in a widening rescue campaign for the nation’s property sector.
The nation’s $1.24 trillion sovereign wealth fund has also vowed to help with risk mitigation and market stabilization in 2024, the latest sign of state companies playing a bigger role in bolstering China’s ailing stock market. Some investors are also turning bullish too.
Bell Asset Management Ltd., a long-time bear, is now scouring the market as stocks are “just so cheap,” while Abrdn Plc is looking to gain exposure via options.
“We were neutral for the last three quarters but we are now starting to see value,” said Louis Luo, head of multi-asset investment solutions for Greater China at Abrdn.
READ: China Bond Inflow Extends on Lucrative Swaps, PBOC Easing Hope
China’s Internet search leader Baidu Inc. gained its most in a month after denying a report of links to a Chinese military AI research institute.
The country is set to publish data showing improvements in gross domestic product, industrial production and retail sales Wednesday, helped by a low base of comparison when pandemic restrictions hampered economic activity.
Some key events in markets this week:
Germany CPI, ZEW survey expectations, Tuesday
UK unemployment, Tuesday
US Empire Manufacturing, Tuesday
Goldman Sachs Group Inc., Morgan Stanley to report earnings, Tuesday
Federal Reserve Governor Christopher Waller speaks, Tuesday
China GDP, property prices, retail sales and industrial production, Wednesday
Eurozone CPI, Wednesday
UK CPI, Wednesday
US retail sales, industrial production, business inventories, Wednesday
Federal Reserve issues Beige Book survey, Wednesday
European Central Bank President Christine Lagarde speaks at Davos, Wednesday
New York Fed President John Williams speaks, Wednesday
Australia unemployment, Thursday
Japan industrial production, Thursday
European Central Bank publishes account of December policy meeting, Thursday
US housing starts, initial jobless claims, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
Japan CPI, Friday
US existing home sales, University of Michigan consumer sentiment, Friday
US Congress faces deadline to pass spending agreement before part of federal government shuts down, Friday
San Francisco Fed President Mary Daly speaks, Friday
Here are some of the main moves in markets:
Stocks
S&P 500 futures fell 0.3% as of 1:03 p.m. Tokyo time
Nikkei 225 futures (OSE) fell 0.9%
Japan’s Topix fell 0.7%
Australia’s S&P/ASX 200 fell 1.1%
Hong Kong’s Hang Seng fell 1.9%
The Shanghai Composite fell 0.6%
Euro Stoxx 50 futures fell 0.4%
Nasdaq 100 futures fell 0.4%
Currencies
The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.3% to $1.0918
The Japanese yen fell 0.3% to 146.12 per dollar
The offshore yuan was little changed at 7.1960 per dollar
The Australian dollar fell 0.7% to $0.6613
Cryptocurrencies
Bitcoin rose 0.3% to $42,828.46
Ether rose 0.5% to $2,532.52
Bonds
The yield on 10-year Treasuries advanced six basis points to 4.00%
Japan’s 10-year yield advanced three basis points to 0.585%
Australia’s 10-year yield advanced seven basis points to 4.15%
Commodities
West Texas Intermediate crude was little changed
Spot gold fell 0.4% to $2,049.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
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