Asian Shares Drop as Central Bankers’ Remarks Dampen Rate Cut Expectations
Asian shares fell to a one-month low, U.S. stock futures declined, and the dollar strengthened as central bankers’ hawkish comments tempered expectations for interest rate cuts. Traders were also awaiting a speech from Christopher Waller of the Federal Reserve. The broadest index of Asia-Pacific shares outside Japan dropped 1% to its lowest level since mid-December. Japan’s Nikkei was set to end its six-session winning streak with a 0.7% dip. S&P 500 futures were 0.4% lower, reflecting a slight cooling in rate cut expectations, while short-term Treasury yields rose.
The Australian and New Zealand dollars declined due to the rise in short-term Treasury yields, pulling the dollar to one-month highs. European bonds were sold after European Central Bank officials pushed back on market bets on rate cuts. Joachim Nagel, Bundesbank President, stated that it was too early to discuss cuts, while Robert Holzmann, Austrian central bank governor, warned against relying on a cut this year.
The euro weakened against the dollar by about 0.3% to a one-week trough at $1.0918 on Tuesday. The Australian and New Zealand dollars both dropped by 0.6%, with the Aussie falling below its 50-day moving average to $0.6620 and the kiwi declining to $0.6161.
Iowa and Interest Rates
Policy and politics are in focus for the remainder of the session. Donald Trump won the first 2024 Republican presidential contest in Iowa, which is expected to create market volatility. The speech by Federal Reserve Board Governor Waller on the economic outlook will be closely watched since his November hawkish views shift had a positive impact on the markets. Waller’s comments may push back market expectations for a rate cut in March and show a lack of urgency to normalize policy.
Gold remained steady at $2,052 an ounce, maintaining its gains from last week. Iron ore prices extended their decline, reaching more than five-week lows in Singapore, which affected the share prices of Australian-listed miners. In Yemen, Houthi forces attacked a U.S.-owned and operated dry bulk ship with an anti-ship ballistic missile, but oil prices did not immediately react. Brent crude futures were down 0.1% at $78.05 a barrel.
In terms of data, Australian consumer sentiment worsened in January due to higher mortgage rates causing concerns over finances. Japan’s wholesale inflation remained flat in December compared to the previous year, relieving pressure on the Bank of Japan to raise rates. Bitcoin maintained its stability at $42,600.
Hot Take: Central Bankers’ Comments Dampen Market Sentiment
The recent remarks from central bankers have impacted market sentiment, leading to a drop in Asian shares and a rise in the dollar. The expectations for interest rate cuts have been tempered due to hawkish comments by policymakers. Traders are eagerly awaiting Christopher Waller’s speech as it could provide further insight into the future direction of monetary policy.
The European Central Bank’s pushback on rate cut bets has also influenced market dynamics, with European bonds being sold off. The euro weakened against the dollar as short-term Treasury yields rose. Additionally, political events such as Donald Trump’s victory in Iowa could introduce volatility into the markets.
Overall, there are several factors at play that could shape market movements in the coming days and weeks. Investors will closely monitor developments related to interest rates, geopolitical tensions, and economic data to make informed decisions.
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