Asian stocks fall; dollar gains on rate outlook jitters
SINGAPORE — Asian shares hit a one-month low, US stock futures fell, and the dollar rose on Tuesday as hawkish remarks from central bankers tempered expectations for interest rate cuts and traders waited to hear from the Fed’s influential Christopher Waller.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4% to its lowest since midDecember.
The Hang Seng headed for its worst session of the year, dropping 2% to a 14-month trough. Japan’s Nikkei snapped a six-session winning streak and retreated from a 34-year high, closing 0.8% lower at 35,619.
US markets were shut for a holiday on Monday, 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 fell 0.3%.
Fed funds futures also dropped notably for Asia hours — reflecting a slight cooling in interest rate cut expectations — and shortterm Treasury yields rose.
Two-year yields were last up seven basis points (bps) and tugged the dollar to one-month highs on the risk-sensitive Australian and New Zealand dollars.
On Monday, European bonds were sold after European Central Bank officials pushed back on market bets on rate cuts.
Bundesbank President Joachim Nagel said it was too early to discuss cuts and Austrian central bank governor Robert Holzmann warned not to bank on a cut at all this year.
“The upshot ... was to see money markets scaling back the implied probability of a 25 bp ECB cut in March to 26% from 40%,” said NAB currency strategist Ray Attrill.
Two-year German bunds rose more than seven bps to 2.6% and 10-year bunds rose 5.4 bps to 2.2%, lending support to the euro, which climbed to a three-week high against the Swiss franc.
A stronger dollar pushed the euro about 0.3% lower to a oneweek trough on the greenback at $1.0913 on Tuesday.
The Australian and New Zealand dollars dropped more than 0.6%, with the Aussie falling through its 50-day moving average to $0.6610 and the kiwi down to $0.6161.
Policy and politics top the radar for the rest of the session.
Donald Trump secured a resounding victory in the first 2024
Republican presidential contest in Iowa on Monday. His candidacy is likely to stir volatility in markets.
US Federal Reserve Board Governor Waller’s speech on the economic outlook at 1600 GMT, meanwhile, is also to be closely watched since markets had so heartily cheered a shift in his hawkish views in November, when he laid out a path to cuts.
“Recall, Waller was responsible for setting up the rally in US equities (when) he gave a defined path by which the Fed could ease,” said Pepperstone analyst Chris Weston.
“The risk for gold, Nasdaq 100 longs and US dollar shorts is that he pushes back on market pricing for a March cut and shows a lack of urgency to normalize policy.”