Hong Kong : Most Asian markets fell on Wednesday, following a decline in Wall Street stocks, even though reports on the U.S. jobs market and business activity came in better than anticipated. U.S. futures and crude oil prices increased. Japan's key Nikkei 225 index remained unchanged at 40,079.09. The Japanese yen declined in value versus the dollar, which was priced at 158.19 yen, an increase from 158.06. Hong Kong’s Hang Seng fell 1.6 per cent to 19,137.88, while the Shanghai Composite index declined 1.5 per cent to 3,182.49. Tencent's stock decreased by 2.1 per cent, while shares of CATL, the largest battery manufacturer globally, fell by 1.4 per cent. Both firms were named in a list published by the U.S. Defense Department connecting them to China's military. At the same time, additional uncertainties hang over the world’s second-largest economy, as possible tariffs and changes in policy are anticipated with U.S. President-elect Donald Trump's inauguration on Jan. 20. In South Korea, the Kospi surged 1.2 per cent to reach 2,522.75. Australia’s S&P/ASX 200 increased by 0.7 per cent to reach 8,348.60.
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Asian Markets Decline
On Tuesday, the S&P 500 dropped 1.1 per cent to 5,909.03 after surrendering an initial gain. The Dow Jones Industrial Average fell 0.4 per cent to 42,528.36, whereas the Nasdaq composite plunged 1.9 per cent to 19,489.68. Stocks fell due to the pressure of increasing yields in the bond market, which surged right after the positive economic reports were released. One stated that U.S. employers were offering more job vacancies at the end of November than economists had anticipated. The other indicated that activity in finance, retail, and various services expanded much more rapidly in December than anticipated. The robust reports are undoubtedly positive for job seekers and for those concerned about a potential recession that previously appeared unavoidable to skeptics. However, a strong economy might also maintain inflationary pressures, making it less probable for the Federal Reserve to implement the interest rate reductions that Wall Street appreciates.
Rising Treasury Yields and Inflation Concerns Weigh on Markets Amid Fed Policy Uncertainty
The Fed started lowering its primary interest rate in September to support the economy, but it has suggested that a reduction in easing is approaching. The potential implementation of tariffs by President-elect Donald Trump has sparked concerns regarding possible increases in inflation, which has persistently stayed slightly above the Fed’s 2 per cent goal. The report released on Tuesday by the Institute for Supply Management regarding U.S. services sectors revealed troubling trends concerning inflation, indicating that price hikes picked up in December. Anticipations for reduced interest rate cuts in 2025 have been accumulating for weeks. That caused longer-term Treasury yields to rise. There are concerns regarding other potential Trump policies, like tax reductions, which may increase the U.S. government's debt and similarly drive yields up.
These elevated yields enhance the appeal of Treasury bonds to investors who might typically prefer stocks, thereby exerting downward pressure on stock prices, while the ultra-safe bonds are offering significantly higher returns. The yield on a 10-year Treasury rose to 4.69 per cent from 4.63 per cent just prior to the Tuesday reports and up from only 4.15 per cent in early December. With concerns from the summer regarding a possibly slowing U.S. economy easing and the 10-year Treasury yield securely above 4.50 per cent, “we think the market is transitioning back into a ‘good news is bad news’ scenario,” state Bank of America strategists headed by Ohsung Kwon. This heightens the importance of Friday's upcoming update on the U.S. job market, with economists anticipating a decrease in overall hiring. According to FactSet, they expect an increase of 156,500 jobs in December. In energy trading, the benchmark U.S. crude increased by 37 cents to reach $74.62 per barrel. Brent crude, the global benchmark, increased by 29 cents to $77.34 per barrel. In currency trading, the euro was priced at $1.0347, an increase from $1.0341.
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