Asian stocks fell to their lowest levels in three weeks on Tuesday as investors scaled back their expectations for U.S. interest rate cuts and awaited U.S. jobs data. The dollar and bonds steadied after a slight rise overnight, reflecting the reduced likelihood of aggressive monetary easing by the Federal Reserve.Â
The focus was on the Australian Central Bank, which was widely expected to keep rates unchanged at 1.5%, but also to signal its readiness to ease policy further if needed.
According to a report by Reuters, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.9% in early trading, extending its losses from the previous session. Japan’s Nikkei also slid 1% to a three-week low, dragged down by falling chipmakers.
Gold, which had soared to a record high in Asia on Monday, retreated sharply as the dollar firmed. The precious metal was last trading above $2,000 an ounce, still up more than 20% this year. Investors were cautious ahead of the U.S. job openings data, due later on Tuesday, and the broader hiring figures, due on Friday. The latter had shown signs of a slowdown in the labor market in October, raising concerns about the health of the world’s largest economy.
The Fed, which had cut rates by 25 basis points in October, had indicated that it would pause its easing cycle unless there was a material deterioration in the economic outlook.
However, some market participants had been hoping for more stimulus from the central bank, especially after a benign inflation report three weeks ago. Futures imply about 125 basis points of cuts by 2024.
ANZ analysts said in a note that the market had embraced the recent improvement in inflation and softer October labor market data, but warned that the Fed would likely maintain a hawkish stance.
“We therefore expect that the Fed, while encouraged by recent inflation improvements, will continue to adopt a hawkish policy stance,” they said.
Hong Kong shares led the declines in Asia, falling to a fresh one-year low amid ongoing political unrest and economic woes. The Hang Seng index slumped to 16,470, below its pre-Asian financial crisis high and down almost 17% in a year when global stocks are up 15%.
In currency markets, the dollar, which had suffered its sharpest monthly decline in a year in November, rose slightly overnight. The euro was steady at $1.0837, just above its 200-day moving average. The Australian and New Zealand dollars pulled back from multi-month highs on Monday.
The Aussie was last at $0.6612 ahead of the interest rate decision. The market was looking for any clues on the central bank’s outlook and guidance after it had hinted at further easing at its last meeting.
Despite the gloomy mood in the markets, some analysts remained optimistic about the prospects for a trade deal between the U.S. and China, which could boost global growth and sentiment.
“We still think a phase one deal will be reached before the December 15 tariff deadline,” said ING economists in a note. “This should help improve business confidence and provide some support to trade and manufacturing activity in 2024.”
