By Tom Westbrook
SINGAPORE (Reuters) – Asian shares fell on Wednesday as a strong rally in global equity markets took a while to materialise, while bond yields and the dollar fell ahead of U.S. economic data and speeches from policymakers expected to call for rate cuts.
The S&P 500 snapped an eight-session streak of gains, falling 0.2% overnight. MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.6%.
Hong Kong’s Hang Seng stock market fell 1.4% and JD.com fell 11% after Bloomberg News reported that major shareholder Walmart plans to sell its large stake.
Japan’s Nikkei opened down 1% after a recovery from early August’s decline hit resistance around the 38,000 level. Further gains in the yen also weighed on sentiment.
“The sell-off itself has largely corrected and recession fears have given way to hopes for a soft landing,” said Bank of Singapore analyst Moh Siong Sim.
“But now we’re back to square one and … the market needs validation before there’s more room for easing, and that validation has to come from data.”
Preliminary revisions to U.S. labor data are due later Wednesday, with a large downward revision expected, which would support cutting rates. U.S. and global purchasing managers index surveys are due on Thursday.
The falling dollar has pushed gold to record highs and the yen back to 145.48 per dollar, up 1.6% so far this week and some 11% higher than its 38-year low.
The euro has risen almost 3% so far in August, hitting its highest level since early December at $1.1130 in morning trading, testing key chart levels. [FRX/]
Interest rate futures have priced in a 25bp US rate cut next month, with a 1/3 chance of a 50bp cut. Nearly 100bps of cuts are priced in this year, and another 100bps next year.
“It is likely that the current softer tone in the dollar largely reflects expectations that a more accommodative Fed policy is drawing closer,” Rabobank strategist Jane Foley said in a note.
“This raises the question of whether hopes for a Fed rate cut are still overblown and the risk of euro/dollar rates falling below $1.10 again in the near term.”
Federal Reserve Chairman Jerome Powell is scheduled to speak at the Jackson Hole Symposium in Wyoming on Friday. The Australian and New Zealand dollars have held on to significant gains recently, with the Aussie at $0.6747 and the Kiwi at $0.6157. [AUD/]
Sentiment remained positive in bond markets with yields on the 10-year US Treasury note falling slightly to 3.81%, while yields on the 2-year Treasury note remained around 3.9962%.
Commodity prices stabilized, with Brent crude futures at $77.17 a barrel and Dalian iron ore bottoming after Bloomberg reported that China plans to allow local governments to buy up unsold homes in the latest housing support measure.
China is the world’s largest steel consumer and markets are sensitive to signs that construction could start again. Shares of major miners were steady in Australia.
Gold prices hovered around $2,516 an ounce, just below Tuesday’s record levels.
In emerging markets, the central banks of Thailand and Indonesia meet Wednesday to set interest rates, with neither bank expected to begin cutting rates before the Federal Reserve.
(Edited by Shri Navaratnam)
