Asian stocks fell to one-month lows, U.S. stock futures fell and the dollar rose on Tuesday as hawkish comments from central banks cooled expectations for rate cuts and traders awaited cues from Christopher Waller to predict the Fed's move, Reuters reported.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1% to its lowest since mid-December. Japan's Nikkei looked set to snap a six-session winning streak with a 0.7% drop from Monday's 34-year high.
U.S. markets were closed for a holiday on Monday, but S&P 500 futures fell 0.4% in Asian trading, Fed funds futures fell – reflecting slightly easing expectations for a rate cut – and short-term Treasury yields rose.
Two-year bond yields rose 6.5 basis points in early Tokyo trading and pushed the dollar to a one-month high against the risk-sensitive Australian and New Zealand dollars.
European bonds sold off on Monday after European Central Bank officials pushed back against market bets on a rate cut.
Bundesbank President Joachim Nagel said it was too early to discuss cuts and Austrian central bank governor Robert Holzmann warned against bank cuts this year.
“The end result … is to see money markets narrow the implied probability of a 25bp ECB rate cut in March to 26% from 40%,” said NAB currency strategist Ray Attrill.
German two-year bonds rose more than 7 bps to 2.6% and 10-year bonds rose 5.4 bps to 2.2%, supporting the euro, which rose to a three-week high against the Swiss franc.
A stronger dollar pushed the euro down about 0.3% to a one-week low against the greenback at $1.0918 on Tuesday.
The Australian and New Zealand dollars both fell 0.6%, with the Aussie falling through its 50-day moving average to $0.6620 and the kiwi falling to $0.6161.
Policy and politics dominated the remainder of the session.
Donald Trump outlasted his rivals to win the first 2024 Republican presidential primary in Iowa on Monday, as predicted by Edison Research.
Meanwhile, Federal Reserve Governor Waller's speech on the economic outlook at 16:00 GMT will be closely watched as markets enthusiastically cheered his shift in hawkish views in November, when he outlined the path to cuts.
“Remember, Waller was responsible for setting the stage for the US stock rally (when) he laid out a clear path for the Fed to ease,” said Pepperstone analyst Chris Weston.
Gold was steady at $2,052 an ounce, holding gains from last week.
Elsewhere in commodities, iron ore extended its decline to hit a more than five-week low in Singapore, dragging down shares of Australian-listed miners.
Houthi forces in Yemen on Monday attacked a US-owned and operated dry bulk carrier with an anti-ship ballistic missile, although oil, which has been aided by instability on the shipping route, did not immediately respond.
Brent crude futures last fell 0.1% to $78.05 a barrel.
On the data front, Australian consumer sentiment worsened in January as higher mortgage rates raised financial concerns. Japan’s wholesale inflation was unchanged in December from a year earlier, slowing for the 12th straight month, putting pressure on the Bank of Japan to raise interest rates.
Bitcoin stabilized at $42,600.
Source: Investing
