(Reuters) – Future outlook for the Asian market.
The perfect storm of rising bond yields, business unrest and rising price pressure that hit Wall Street on Tuesday led to a sharp decline in Asian markets on Wednesday, with investors wondering if this could be the beginning of a deeper correction. Dark clouds seem to be gathering over the situation.
There are some major releases on the Asian economic calendar, including services sector Purchasing Managers Index data for China and Japan, but the tone of markets on Wednesday will likely be determined by the recent tightening in global financial conditions. .
On Tuesday, the 10-year Treasury yield hit 4.40%, Brent crude oil prices hit $89 a barrel, both the highest levels this year, and Tesla stock saw its quarterly deliveries fall for the first time in nearly four years. The stock fell 5% following the company's announcement.
The three major U.S. indexes fell 0.7% to 1.0%, with the S&P 500 posting its biggest decline in a month. This doesn't bode well for Asia on Wednesday, but you could argue that the glass is half full.
In some ways, Wall Street has held up pretty well, given the spike in yields, the rebound in implied rates, and the renewed buzz about the return of “bond vigilantes” to stalk bond markets. Small beers fell less than 1% after a relentless rally that hit record highs last week.
Still, there are many reasons to be careful.
As the yen continues to hover around 152.00 to the dollar, the threat of Japanese authorities intervening in the foreign exchange market to support the struggling yen persists.
Recent movements in the Chinese currency are also worth noting. The offshore yuan is creeping above the central bank's daily fixed interest rate cap of 2%. The move comes ahead of U.S. Treasury Secretary Janet Yellen's return later this week for new talks with Chinese government officials.
China's “unofficial” Caixin Service PMI data on Wednesday capped a series of surprisingly strong PMI reports raising hopes that the world's second-largest economy is finally regaining momentum.
Ironically, however, this new optimism, along with the punch of the US manufacturing PMI, is putting upward pressure on global bond yields and, in turn, downward pressure on stock prices.
Global markets may be returning to the “good news is bad news” mentality.
Alibaba shareholders may be asking themselves similar questions after the Chinese e-commerce giant announced on Tuesday that it had carried out $4.8 billion in stock buybacks in the three months through March.
Hong Kong-listed stocks rose 1%, while U.S.-listed stocks fell 0.7%.
Here are the key developments that could give further direction to the market on Wednesday:
– China Caixin Services PMI (March)
– Japan Services PMI (March)
– Hong Kong Retail Sales (February)
(Written by Jamie McGeever; Edited by Josie Kao)
Copyright 2024 Thomson Reuters.
