Asian shares fell on Tuesday as concerns over the Middle East overshadowed hopes of an early rate cut by the Federal Reserve, with investors now awaiting key data releases from China and the United States later in the week.
With Wall Street closed on Monday for a holiday, there were few catalysts to drive markets, while analysts warned that investors may have been over-optimistic about how much the US central bank will ease monetary policy this year.
Stocks soared at the end of 2023 as several reports showed inflation easing and the labor market softening, while the Fed said it was preparing to reverse a more than year-long hike.
Bets had been built that officials would announce a rate cut as soon as March.
However, January saw the wind taken out of the sails after minutes from the central bank’s December meeting showed policymakers keen to keep interest rates high for some time, while a closely watched jobs report broke the forecasts and consumer prices rose more than expected.
Asian shares mixed after US inflation data, oil flat
“Current market pricing suggests a forecast of nearly seven rate cuts in 2024 on the belief that the deflationary process is firmly entrenched and unlikely to be easily displaced,” said Stephen Innes of SPI Asset Management.
βIt is important to recall that the market consistently underestimated the Federal Reserve’s willingness to raise interest rates during the hiking cycle.
“So this begs a simple question: Is the market now overestimating the Fed’s willingness or ability, particularly given the prevailing inflation dynamics, to implement rate cuts over the next 12 months?”
While inflation is on a general downward trend, there is concern that it could rebound at any time, particularly with tensions in the oil-rich Middle East showing no signs of easing.
The United States and Britain have launched strikes in recent days against Yemen’s Houthis in retaliation for attacks by Iranian-backed rebels on ships in the Red Sea in what they say is solidarity with Gaza.
China’s economic growth in 2023 is expected to be the weakest in decades
The strikes were met with warnings of retaliation by the group, which on Monday hit a US-owned cargo ship with a missile, heightening fears that conflict could erupt across the region, destroying supplies of oil and other goods.
But after an initial surge higher on Friday, oil prices remain subdued on demand concerns as the global economy — particularly China — struggles.
Investors now await the release this week of US data on retail sales, industrial production and jobs, among others.
Asian markets were mostly lower on Tuesday, with Tokyo slightly lower after six straight gains that saw the Nikkei soar to a 34-year high on rising inflation and a weak yen helping exporters.
Hong Kong was also in the red ahead of data on Chinese economic growth and retail sales due on Wednesday. Shanghai went up.
Losses were also recorded in Sydney, Seoul, Singapore, Bangkok, Mumbai, Wellington, Taipei and Manila.
Oil rallies as US, UK hit Huthis, stocks mixed after US CPI
The weak performance followed losses in Europe that emerged after data showed the continent’s biggest economy, Germany, shrank slightly in 2023 as expensive energy, high interest rates and cooling external demand weighed on them.
Keys around 07:00 GMT
Tokyo – Nikkei 225: Down 0.8 percent at 35,619.18 (close)
Hong Kong – Hang Seng Index: Down 1.8 percent to 15,917.87
Shanghai – Composite: UP 0.3 percent to 2,893.99 (close)
West Texas Intermediate: DOWN 0.3% to $72.44 a barrel
North Sea Brent crude: FLAT at $78.17 a barrel
Dollar/yen: UP to 146.09 yen from 145.77 yen on Monday
EUR/USD: DOWN at $1.0918 from $1.0952
GBP/USD: DOWN to $1.2685 from $1.2737
Euro/pound: UP to 86.07 pence from 85.98 pence
New York – Dow: Closed for a holiday
London – FTSE 100: Down 0.4% to 7,594.91 (close)
Source: AFP