Asian stocks braced for a fall on Thursday after U.S. stocks and government bonds fell as solid economic data clouded the prospect of an imminent Federal Reserve interest rate cut.
Japanese and Australian stock futures fell, while Hong Kong stock futures rose slightly, even as a gauge of US-listed Chinese companies fell in New York trading on Wednesday. The S&P 500 fell 0.3% and the Nasdaq 100 fell 0.8%. Technology stocks led the decline, with Microsoft shares down about 4% in late trading after the software maker gave disappointing second-quarter forecasts.
U.S. Treasury yields rose on Wednesday, while global bond market benchmarks fell to their lowest levels in nearly three months. Traders reduced bets on policy easing after data showed the U.S. economy expanded at a solid pace in the third quarter, supported by faster household purchases and defense spending. A measure of underlying inflation rose 2.2%, roughly in line with the Federal Reserve’s target.
Brett Kenwell of eToro said “strong but not breakneck growth fits well with the current economic climate,” even if it means a slower pace of rate cuts. “It’s much better to have a strong economy and earnings drive up stock prices than expectations for monetary easing from the Fed,” he said.
In other parts of Asia, the yen is expected to be little changed at around 153 yen to the dollar, with interest rates expected to remain unchanged at 0.25% ahead of the Bank of Japan’s interest rate decision. Other economic indicators scheduled to be released include Japan’s industrial production, China’s manufacturing PMI statistics, and Taiwan and Hong Kong’s gross domestic product reports.
The dollar strength index fell slightly on Wednesday. The Bloomberg Dollar Spot Index’s one-week implied volatility measure rose Wednesday to its highest level since December 2022, when recession fears briefly rippled through financial markets. This shows traders are bracing for significant currency movements against major currencies such as the euro, yen, Chinese yuan and Mexican peso, driving up the cost of options that protect against such moves.
Crude oil rebounded on Wednesday, and gold was steady around $2,786 an ounce early Thursday after setting a new record in the previous session. Demand for precious metals was partially supported by uncertainty brought about by next week’s US presidential election.
The fundamental trend of the US stock market is becoming increasingly bullish, and the end of the US election should give a new shock to stock prices.
The factors for stock price increases are increasing, stock prices are entering a historically strong period, and companies are starting to buy back their own shares. Investors may be over-hedging against the upcoming financial results, the U.S. presidential election, and central bank risks in early November. Also, systematic investors and option desks may be forced to buy up stocks as market volatility has declined from early August highs.
Investors are in “wait-and-see” mode ahead of the vote, Barclays strategists led by Emmanuel Cau wrote in a note saying “animal spirits” could return to the market following the U.S. presidential election. He said it seems like it.
Although stock inflows were stable in October, there was still a strong sense of caution and trading volumes were low. Strategists say hedge funds and systematic strategies increased equity positions in October after a mostly quiet September.
U.S. stocks could rise ahead of Donald Trump’s likely victory in next week’s U.S. presidential election, but Citigroup strategists say a Republican landslide victory would be a signal to sell. .
Trump’s victory is generally seen as good news for the stock market, as his proposals to lower corporate taxes are likely to be good for corporate profits. But Citi strategists argue that the “near-euphoric sentiment” that has propelled the S&P 500 index toward six consecutive months of gains is ripe for a pullback in stocks.
The main movements in the market are:
This article was produced in partnership with Bloomberg Automation.
This article was generated from an automated news agency feed without modifications to the text.
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