SYDNEY: Asian share markets were trading mostly in negative territory on Tuesday, as investors anticipated a somewhat rocky road for China’s unwinding of Covid restrictions and the prospect that US interest rates will rise higher than expected in 2023.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2% after US stocks ended the previous session lower. The index is down 0.1% so far this month.
China is pushing on with easing restrictions after three years of Covid-19 lockdowns which are leaving investors to question how financial markets will react to the reopening.
“The positive reaction to the reopening is starting to give way to the realisation that it’s going to be a lumpy path for China to get there,” JP Morgan Asset Management’s global market strategist Kerry Craig told Reuters.
“Once they do reopen, there will be positive sentiment and China will become a growth story for the world again.”
Australian shares on Tuesday were down 0.72%, while Japan’s Nikkei stock index rose 0.34%.
Hong Kong’s Hang Seng Index was down 1% early in the session while China’s CSI300 Index was off 0.34%.
In Asian trading, the yield on benchmark 10-year Treasury notes rose to 3.5993% compared with its US close of 3.583% on Monday.
Yields rose 11 basis points in the US on Monday, as investors shifted into bonds as a safe haven bet while they digested the Federal Reserve’s 50 basis point rate rise delivered last week.
“The subsequent hawkish Fed policy update remains fresh in the minds of investors,” NAB analyst wrote on Tuesday.
The two-year yield, which rises with traders’ expectations of higher Fed fund rates, was flat at 4.262%.
The shift higher in yields was helped after former Federal Reserve official William Dudley said on Monday it was likely rates could go higher even as U.S. unemployment started to creep higher.
In Asia, investors will be closely watching the Bank of Japan’s policy decision on Tuesday which will be the final central bank decision for the year.
The bank is expected to maintain its ultra-loose monetary policy but any signs of a change of tone towards inflation, which has exceeded the 2% target for seven months, will be scrutinised.
Australia’s Reserve Bank considered leaving interest rates on hold at its Dec 6 policy meeting, according to minutes published on Tuesday, but delivered a 25 basis point hike.
The dollar rose 0.41% against the yen to 137.44.
It is still some distance from its high this year of 151.94 in late October.
The European single currency was down 0.1% on Tuesday at US$1.0597, having gained 1.85% in a month, while the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down 0.153% at 104.66.
The Dow Jones Industrial Average fell 162.92 points, or 0.49%, to 32,757.54, the S&P 500 lost 34.7 points, or 0.90%, to 3,817.66 and the Nasdaq Composite dropped 159.38 points, or 1.49%, to 10,546.03. The three markets closed in the red for the fourth straight session.
“We might not get much of a Santa Claus stock market rally as Wall Street rushes to price in credit and earnings risks,” OANDA analsyt Edward Moya wrote.
The S&P 500, the Dow and the Nasdaq are on track to notch their largest annual percentage losses since 2008, the nadir of the global financial crisis.
US crude ticked up 0.86% to US$75.84 a barrel. Brent crude rose to US$80.44 per barrel.
Gold was slightly lower. Spot gold was traded at US$1,785.41 per ounce.