Asian shares extend global sell-off as rate hopes ebb

SYDNEY: Asian shares extended a global sell-off on Wednesday, while the dollar held gains, as market optimism about early and aggressive U.S. interest rate cuts ebbed ahead of the release of Fed minutes and jobs data.

Europe is set to open lower, with EUROSTOXX 50 futures down 0.4% and FTSE futures off 0.3%. S&P 500 futures and Nasdaq futures were both down 0.1%.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.3% after a 1.0% drop on Tuesday in a sluggish start to 2024. The index rose 4.6% in 2023.

Japan markets are shut for a public holiday.

South Korean shares slid 2.1%, and Hong Kong's Hang Seng index fell 1.1%, as technology shares dropped 2.2% following a tech-led slide on Wall Street.

However, Chinese gaming stocks rose after Reuters reported that Beijing had removed a gaming regulatory official. The sector had suffered a sell-off in the wake of proposed rules to curb spending on video games.

Kyle Rodda, an analyst at Capital.com, said the combination of event risk and thin liquidity at the tail end of the holiday raises the prospect of exaggerated moves in markets and heightened volatility.

"All that's required is a catalyst, which could come from the data flow in the coming days," Rodda said.

Later on Wednesday, U.S. Fed minutes for its December meeting and the ISM survey on U.S. manufacturing are due to be released. The closely watched U.S. nonfarm payrolls report is due on Friday.

Overnight, Wall Street's euphoria about the prospects for rate cuts cooled as stocks retreated from record highs. The CME FedWatch Tool suggests a 21.4% chance that U.S. rates will remain steady in March, up from 11.4% on Dec. 29.

The Nasdaq slid 1.6%, dragged lower by a nearly 3% drop in Apple to a seven-week low after Barclays downgraded its shares.

Tesla shares ended flat after a record number of electric vehicle deliveries in the fourth quarter wasn't enough to prevent China's BYD from taking its spot as the top EV maker.

A climb in U.S. Treasury yields in the New Year also pressured stocks. The 10-year yield briefly popped above 4% overnight for the first time in two weeks before closing at 3.9406%, up 8 basis points on the day.

Cash Treasuries were not traded in Asia due to the holiday in Japan.

"There are reasons to be a tad concerned on the risk front at this early phase of 2024. Geo-political concerns have not abated, and in fact if anything are elevating," said Padhraic Garvey, regional head of research, Americas, at ING.

Indeed, tensions in the Middle East are ratcheting up. Israel on Tuesday killed Hamas deputy leader Saleh al-Arouri in Lebanon's capital Beirut, Lebanese and Palestinian security sources said, raising the potential risk of war in Gaza spreading well beyond the Palestinian enclave.

Denmark's Maersk and German rival Hapag-Lloyd said on Tuesday their container ships would continue to avoid the Red Sea after a series of attacks on vessels blamed on Houthi militants.

The U.S. dollar, which climbed 0.8% against its peers overnight to a two-week high, held steady at 102.1.

Bitcoin rose 0.7% to $45,287, not far from a 21-month peak of $45,922 on Tuesday.

Oil prices extended declines. U.S. crude futures slipped 0.3% to $70.18 a barrel, after dropping more than 1% on Tuesday, while Brent was also 0.3% lower at $75.68 a barrel.

Spot gold rose 0.3% to $2,065.39 an ounce. - Reuters