Asian shares halted a three-day rally, while the dollar strengthened amid concern this week’s gains on weak US inflation print are overdone.
The MSCI Asia Pacific Index slid 0.4% with Chinese shares in Hong Kong leading the decline after home prices fell at the fastest clip since 2015, underscoring the hurdles for the world’s second-largest economy to emerge out of its economic rut. US futures dropped, effectively erasing the 0.2% gain in the S&P 500 on Wednesday.
“Keep in mind US equity markets are approaching overbought levels, so it feels like we have the makings of a pullback,” said Tony Sycamore, a market analyst at IG Australia. Sycamore warned the Federal Reserve “won’t be thrilled by the recent easing in financial conditions, undermining its higher-for-longer message”.
The rally in Treasuries this week following a soft inflation print in the US has raised doubts if the market is jumping the gun on a dovish Fed. The bond market is at risk of leaning too heavily toward rate cuts next year as “the inflation problem is far from being solved,” said Daniel Ivascyn, chief investment officer at Pacific Investment Management Co.
Treasuries rose slightly in Asia after a selloff Wednesday where the 10-year rate rose eight basis points to above 4.5%. The greenback pulled back slightly from it’s days high and was trading 0.1% higher.
A Bloomberg gauge of property stocks in China slumped 1.4% following the weak housing data. Technology stocks in Hong Kong fell over 2% weighed down by selloff in Xiaomi and Tencent erasing its gains of as much as 2%. Investors were also looking ahead to corporate earnings from Alibaba Group Holding Ltd. and NetEase Inc. later today following encouraging results from JD.com Inc and Tencent Holdings Ltd.
Traders also assessed the impact of US President Joe Biden’s remark of Xi being a dictator, which may cast a shadow over the progress made by both sides at at the summit in San Francisco Wednesday. There’s “not much so far” from the talks between the two leaders, but “the tone from both sides seems conciliatory and that is good,” said Redmond Wong, a market strategist at Saxo Capital Markets in Hong Kong.
Elsewhere in Asia, Australian dollar fell against most Group-of-10 currencies as traders focused on the nation’s rising jobless rate even as employment numbers improved in October. The value of imports in Japan gained 1.6% from a year earlier in October, outpacing estimates of a 1% increase.
“We think AUD/USD continues to hover around 0.6500 into the year-end. The US rates market is overly optimistic on Federal Reserve rate cuts for 2024 and China’s economic recovery remains soft,” said David Forrester, a senior currency strategist at Credit Agricole CIB in Singapore.
Oil extended declines after a government report showed swelling US crude inventories. Gold was steady and Bitcoin traded above $37,500. Gold edged higher.
Key events this week:
- US initial jobless claims, industrial production, Thursday
- Walmart earnings, Thursday
- Cleveland Fed President Loretta Mester, New York Fed President John Williams and Fed vice chair for supervision Michael Barr speak, Thursday
- Bank of England deputy governor Dave Ramsden and ECB President Christine Lagarde speak at event, Thursday
- US housing starts, Friday
- US Congress faces a midnight deadline to pass a federal spending measure, Friday
- ECB President Christine Lagarde speaks, Friday
- Chicago Fed President Austan Goolsbee, Boston Fed President Susan Collins and San Francisco Fed President Mary Daly speak, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.1% as of 1:55 p.m. Tokyo time
- Nasdaq 100 futures fell 0.2%
- Japan’s Topix fell 0.2%
- Australia’s S&P/ASX 200 fell 0.8%
- Hong Kong’s Hang Seng fell 1.6%
- The Shanghai Composite fell 0.6%
- Euro Stoxx 50 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0837
- The Japanese yen was little changed at 151.26 per dollar
- The offshore yuan was little changed at 7.2641 per dollar
Cryptocurrencies
- Bitcoin fell 0.4% to $37,480.48
- Ether rose 0.4% to $2,056.23
Bonds
- The yield on 10-year Treasuries declined three basis points to 4.50%
- Australia’s 10-year yield advanced two basis points to 4.55%
Commodities
- West Texas Intermediate crude fell 0.8% to $76.06 a barrel
- Spot gold rose 0.1% to $1,962.37 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Richard Henderson, Michael G. Wilson, Masaki Kondo and Matthew Burgess.
