Asian stocks slide to one-month low

Singapore — Asian shares dropped to a one-month low, US stock futures fell and the dollar rose on Tuesday as hawkish remarks from central bankers tempered expectations for interest rate cuts and traders waited to hear from Federal Reserve board governor Christopher Waller.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1% to its lowest since mid-December. Japan’s Nikkei looked set to snap a sharp six-session winning streak with a 0.7% dip away from Monday’s 34-year high.

US markets were closed for a holiday on Monday, but S&P 500 futures were 0.4% lower in Asia trade, Fed fund futures fell — reflecting a slight cooling in interest rate cut expectations — and short-term treasury yields rose.

Two-year yields were up 6.5 basis points in early Tokyo trade and tugged the dollar to one-month highs on the risk-sensitive Australian and New Zealand dollars.

On Monday European bonds were sold after European Central Bank officials pushed back on market bets on rate cuts.

Bundesbank president Joachim Nagel said it was too early to discuss cuts and Austrian central bank governor Robert Holzmann warned not to bank on a cut this year.

“The upshot was to see money markets scaling back the implied probability of a 25 basis point ECB cut in March to 26% from 40%,” NAB currency strategist Ray Attrill said.

Two-year German bunds rose more than 7 basis points to 2.6% and 10-year bunds rose 5.4 basis points to 2.2%, lending support to the euro, which climbed to a three-week high against the Swiss franc.

A stronger dollar pushed the euro about 0.3% lower to a one-week trough on the greenback at $1.0918 on Tuesday.

The Australian and New Zealand dollars dropped 0.6% each, with the Aussie falling through its 50-day moving average to $0.6620 and the kiwi down to $0.6161. Policy and politics top the radar for the rest of the session.

Donald Trump muscled past his rivals to capture the first 2024 Republican presidential contest in Iowa on Monday, according to Edison Research projections, as expected. His candidacy is likely to stir volatility in markets.

Waller’s speech on the economic outlook at 4pm GMT is expected to be closely watched after markets had heartily cheered a shift in his hawkish views in November when he laid out a path to cuts.

“Recall, Waller was responsible for setting up the rally in US equities when he gave a defined path by which the Fed could ease,” Pepperstone analyst Chris Weston said. “The risk for gold, Nasdaq 100 longs and US dollar shorts is that he pushes back on market pricing for a March cut and shows a lack of urgency to normalise policy.”

Gold steadied at $2,052 an ounce, holding on to gains from last week.

Elsewhere in commodities, iron ore extended falls to touch more than five-week lows in Singapore, dragging on share prices for Australia-listed miners.

Houthi forces in Yemen struck a US owned and operated dry bulk ship with an anti-ship ballistic missile on Monday. Oil, which has been supported by the instability in the shipping lane, gave no immediate reaction.

Brent crude futures were last down 0.1% to $78.05 a barrel.

On the data front, Australian consumer sentiment took a turn for the worse in January as higher mortgage rates stoked concerns over finances. Japan’s wholesale inflation was flat in December from a year earlier, slowing for the 12th consecutive month, taking pressure off the Bank of Japan to raise rates.

Bitcoin was steady at $42,600.

Reuters