Asian markets experienced a downturn on Wednesday as a strong global stock rebound took a breather. Meanwhile, bond yields and the U.S. dollar saw declines ahead of anticipated U.S. economic data and speeches from policymakers, which are expected to bolster arguments for interest rate cuts.
The S&P 500 ended its eight-session winning streak with a 0.2% drop overnight. The MSCI Asia-Pacific index, excluding Japan, fell by 0.5%. U.S. and European futures edged up approximately 0.2%.
In Hong Kong, the Hang Seng Index fell by 1%, driven by a 10% drop in JD.com shares after Walmart, its largest shareholder, announced plans to divest its significant stake.
Japan’s Nikkei index initially dropped 1% at the open, encountering resistance around the 38,000 level. It later recovered slightly, ending 0.3% lower in the afternoon.
Bank of Singapore analyst Moh Siong Sim noted that while the recent sell-off has largely been corrected and recession fears have eased, the market remains in a state of uncertainty. “The market needs validation before it can be more relaxed, and that validation must come from data,” Sim stated.
Later on Wednesday, preliminary revisions to U.S. labor data are expected, with forecasts suggesting a large downward adjustment that could support the case for interest rate cuts. The Federal Reserve’s minutes are also anticipated to reinforce a dovish outlook. On Thursday, U.S. and global purchasing managers’ index (PMI) surveys will be released.
The weakening dollar has driven gold prices to record highs and bolstered the yen to 145.67 per dollar, marking a 1.6% gain for the week and an 11% increase from last month’s 38-year low. The euro has risen nearly 3% in August and reached $1.1132 in Asian trading, its highest level since early December.
Interest rate futures are pricing in a 25 basis point (bps) cut by the U.S. Federal Reserve next month, with a one-third chance of a 50 bps cut. Markets are also anticipating a total of 100 bps in cuts this year and another 100 bps next year.
Rabobank strategist Jane Foley commented, “The current softer tone of the greenback is likely driven by expectations of imminent Fed policy easing. This raises the question of whether the hopes for Fed rate cuts are overblown and if there is a risk of a near-term dip in the euro/dollar exchange rate below $1.10.”
Federal Reserve Chair Jerome Powell is scheduled to speak at the Jackson Hole symposium in Wyoming on Friday. The Australian and New Zealand dollars maintained recent gains, with the Aussie at $0.6747 and the kiwi at $0.6157.
Bond markets remained steady, with 10-year U.S. Treasury yields decreasing to 3.81%, while two-year yields were stable at 3.99%. Commodity prices stabilized, with Brent crude futures holding at $77.12 per barrel and Dalian iron ore finding support following a Bloomberg report on China’s plan to allow local governments to purchase unsold homes as part of its property market support measures.
In emerging markets, central banks in Thailand and Indonesia are meeting to decide on interest rates, though neither is expected to initiate rate cuts before the Federal Reserve.
Related topic: