(Bloomberg) — Asian equities slipped while European stocks look set for another day of losses as risk-on mood sours at the beginning of the year. The dollar mostly held on to its gains.
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Equity benchmarks in South Korea and Australia declined Wednesday after closing at their highest levels since at least mid-2022 in the previous session. A gauge of Chinese Kong tech shares was down more than 2%, while Japanese markets remain closed for a holiday.
The new year has started on a somber note, after huge bets on a Federal Reserve pivot spurred a worldwide rally in both stocks and bonds in the fourth quarter. Contracts for US shares edged lower after the tech-heavy Nasdaq 100 dropped the most in more than two months on Tuesday. Euro Stoxx 50 futures declined.
Treasury futures were little changed in Asian hours Wednesday as trading of cash Treasuries is still closed due to the Japanese holiday. Bonds slumped in US trading, partly reflecting doubts that policymakers will deliver the extent of monetary easing that’s priced by money markets, with central banks reluctant to give up the fight against inflation too soon.
The dollar traded in narrow range against its Group-of-10 peers after notching its biggest daily gain since March.
“2024 has kicked off with risk retrenchment — equities and bonds falling against a resurgent US dollar,” Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank Ltd., said in a note. “Whether this is a durable purge from excessive exuberance or merely pre-NFP profit-taking is unclear,” referring to the US nonfarm payrolls data due later this week.
China tech stocks are in focus after a report that Beijing removed a top official who oversaw the nation’s gaming industry, which suggests the government is trying to tamp down a backlash against harsh new regulations that triggered an $80 billion rout across the sector. Tencent Holdings Ltd. and smaller rival NetEase Inc. reversed earlier losses.
“If the story is accurate, it will send a signal that what happened was not a reversal of policy direction to more tightening in the mobile and online gaming industry and may give investors some relief on policy stability and certainty,” said Redmond Wong, a market strategist at Saxo Capital Markets in Hong Kong. “But overall, investors are still skeptical. The news is positive but is not big enough to move the needle or the big picture.”
Eyes on Fed Minutes
Traders are now waiting for the release of the latest Fed minutes Wednesday. The tone is expected to be hawkish, according to BMO Capital Markets’ Ian Lyngen.
“A dovish surprise, while unlikely, would hold far greater shock value for a market that has moved away from taking the Fed at face value in favor of a more skeptical approach,” the strategist wrote.
Wednesday’s job openings data and Friday’s nonfarm payrolls will also be scanned for signs of weakness in the labor market.
“If Fed Chairman Powell is right that inflation can slow further without a sharp increase in unemployment, then the stock and bond rallies are justified,” according to Bloomberg Economics. Kristalina Georgieva, the head of the International Monetary Fund, told CNN International that the US economy is “definitely” headed for a soft landing thanks to the Fed’s “decisiveness” in taming inflation.
Bitcoin hovered around $45,000 after climbing above that level for the first time in almost two years Tuesday on anticipation around the expected US approval for an exchange-traded fund investing directly in the biggest token.
Oil held a drop as broad risk-off sentiment undercut concerns about escalating conflict in the Red Sea.
Key events this week:
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Germany unemployment, Wednesday
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US FOMC minutes, ISM Manufacturing, job openings, light vehicle sales, Wednesday
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Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Wednesday
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China Caixin services PMI, Thursday
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Eurozone S&P Global Eurozone Services PMI, Thursday
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US initial jobless claims, ADP employment, Thursday
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Eurozone CPI, PPI, Friday
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US nonfarm payrolls/unemployment, factory orders, ISM services index, Friday
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Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 6:05 a.m. London time
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Hong Kong’s Hang Seng fell 1.2%
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The Shanghai Composite fell 0.2%
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Euro Stoxx 50 futures fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $1.0953
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The Japanese yen was little changed at 142.11 per dollar
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The offshore yuan was little changed at 7.1505 per dollar
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The British pound rose 0.1% to $1.2632
Cryptocurrencies
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Bitcoin rose 0.2% to $45,208.55
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Ether rose 0.5% to $2,378.21
Bonds
Commodities
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West Texas Intermediate crude fell 0.2% to $70.27 a barrel
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Spot gold rose 0.3% to $2,064.33 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Joanna Ossinger.
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