Wall Street U-turn knocks Asian stocks lower

Hong Kong — Asian shares retreated on Thursday after Wall Street snapped a long winning streak, while treasury yields were near five-month lows on hopes Britain’s notably soft inflation reading would be echoed in looming US price data.

The equities rally, which had been driven by falling interest rates and the Federal Reserve’s dovish turn, stalled on Thursday even after US economic data that beat expectations initially turned the major indices green. A steeper-than-expected decline in British inflation also took markets by surprise.

“Three US benchmark averages sharply retreated in the late session … snapping a winning streak [of more than a week]. This could be due to an overbought market as rate cuts optimism ran out of steam,” said Tina Teng, market analyst at CMC Markets. “Global government bond yields accelerated [their] fall due to risk-off sentiment.”

European markets were set for a lower open, with the pan-region Euro Stoxx 50 futures down 0.48%, German DAX futures dipping 0.44% and FTSE futures falling 0.57%.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.3%, after US stocks closed sharply lower in the previous session. The index is up 1.7% so far this month.

US stock futures, the S&P 500 e-minis, were up 0.33%.

Australian shares were 0.45% weaker, dragged down by losses in commodity-related stocks, while Japan’s Nikkei stock index slid 1.55%, slipping from near record highs.

China’s blue-chip CSI300 index rose 1.25%, rebounding from a near five-year low hit in the previous session. Foreign investors have been net buyers of Chinese shares so far on the day, after two sessions of selling.

Hong Kong shares tracked global markets lower in morning trade but the benchmark Hang Seng index gained 0.14% in the afternoon.

On Wednesday, an abrupt mid-afternoon nosedive ended Wall Street’s impressive rally. All three major US stock indices, which were at or near record highs this week, veered lower late in the session. The Dow Jones industrial average fell 1.27%, the S&P 500 lost 1.47% and the Nasdaq composite dropped 1.5%.

In US treasuries, the yield on benchmark 10-year treasury notes reached 3.8676% compared with its US close of 3.877% on Wednesday when it fell to an almost five-month month low as government bond yields fell globally after the British inflation data. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 4.3705% compared with a US close of 4.369%.

British inflation plunged in November to 3.9% — its lowest rate in over two years — from 4.6% in October, pushed down in part by cheaper petrol.

In currencies, the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 102.29. The greenback on Wednesday strengthened against sterling after the release of the British inflation data fuelled speculation of rate cuts by the Bank of England in the first half of 2024.

Sterling was last trading at $1.2646, up 0.06% on the day, while the euro was up 0.1% at $1.095.

In commodities, global oil benchmark Brent hovered above $80 a barrel amid jitters over global trade disruptions and geopolitical tensions in the Middle East after attacks on ships in the Red Sea by Yemen’s Iran-aligned Houthi forces. Brent crude was last trading at $79.62 a barrel and US crude dipped 0.11% to $74.14 a barrel.

Gold was slightly higher at $2036.19/oz.

Reuters