Asian shares plunged to a one-month low, with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 1.4%, reaching its lowest since mid-December.
Hawkish remarks from central bankers dampened expectations for interest rate cuts, impacting investor sentiment.
The Hang Seng dropped 2%, heading for its worst session of the year, while Japan’s Nikkei retreated from a 34-year high, closing 0.8% lower at 35,619.
U.S. Markets Closed for Holiday:
U.S. markets were closed on Monday for a holiday, but S&P 500 futures were 0.5% lower in Asia trade on Tuesday, and Nasdaq 100 futures dropped 0.6%.
European futures fell 0.6%, and FTSE futures declined 0.3%. The dip in U.S. stock futures reflects the impact of the hawkish sentiment from central bankers on global markets.
Fed Funds Futures Drop:
Fed funds futures fell during Asia hours, signaling a slight cooling in expectations for interest rate cuts. Short-term Treasury yields rose, with two-year yields up 7 basis points, pushing the dollar to one-month highs against the risk-sensitive Australian and New Zealand dollars.
European Bonds Sold After ECB Officials Deter Rate Cut Expectations:
European bonds were sold after European Central Bank officials pushed back on market expectations for rate cuts.
Joachim Nagel, Bundesbank President, stated it was too early to discuss cuts, and Robert Holzmann, Austrian central bank governor, warned against expecting a cut in 2023.
The euro climbed to a three-week high against the Swiss franc.
Policy, Politics, and Economic Outlook in Focus:
Policy, politics, and the economic outlook are in focus for the rest of the session. Donald Trump’s victory in the first 2024 Republican presidential contest in Iowa is expected to influence market volatility.
Additionally, Federal Reserve Board Governor Christopher Waller’s speech on the economic outlook will be closely monitored, especially after a shift in his hawkish views in November.
Gold steadied at $2,048 an ounce, retaining gains from last week. In commodities, iron ore extended falls to touch more than five-week lows in Singapore, impacting Australia-listed miners’ share prices. Bitcoin remained steady at $42,700.