Asian shares hesitant, dollar buoyant after Wall Street sell-off.

Asian shares hesitant, dollar buoyant after Wall Street sell-off.

Asian Shares Subdued as Fitch Downgrades US Sovereign Debt

Asian Shares

Asian shares remained subdued on Thursday following Fitch’s downgrade of U.S. sovereign debt. This sparked profit-taking among investors, who are now shifting their focus to the Bank of England’s rate decision and the upcoming earnings reports from tech giants Apple and Amazon.

Both S&P 500 futures and Nasdaq futures saw a modest increase of 0.2% after a heavy wave of selling on Wall Street the previous night. In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.2% after experiencing a significant drop of 2.3% the day before. Despite this decline, the index still managed to achieve a monthly gain of 5.4% in July.

The Nikkei, Japan’s major stock index, fell 1.1% on Thursday, bringing its total losses in August to 2.5%. This decline follows a 7.5% surge seen in the previous month. Additionally, the yield on 10-year Japanese government bonds (JGB) rose to 0.65%, reaching its highest level since April 2014, following the Bank of Japan’s decision to loosen its grip on yield curve control last week.

On the other hand, Chinese blue chips registered a 0.2% increase, while Hong Kong’s Hang Seng index remained mostly flat. The positive news from China’s private survey, which showed an expansion in services activity in July, contributed to the slight growth in Asian shares.

However, market analyst Matt Simpson from City Index in Brisbane expressed his concerns about the market, stating, “I reckon that even though you could argue that the Fitch downgrade is outdated … I think you’ve seen enough movements for some things to be burned and some questions to be asked at these highs.” He suggests that there may be some choppy trade or even a deeper pullback in the market.

Nasdaq and S&P 500 Experience Significant Declines

Overnight, the Nasdaq and S&P 500 posted their biggest declines since February and April, respectively. This comes after a strong performance in July propelled by better-than-expected earnings results and hopes of a soft landing for the U.S. economy.

Apple and Amazon Earnings Reports Awaited

Later in the day, Apple is expected to report the largest third-quarter drop in revenues since 2016 as sales of iPhones slow down. On the other hand, Amazon.com Inc is expected to report a more than 8% rise in second-quarter revenue, driven by a recovery in the advertising and e-commerce businesses. These reports will likely have a significant impact on market sentiment and direction.

Impact of Stronger US Yields on Risk Sentiment

The recent strong private employment data and the announced refunding of the U.S. government’s maturing debt have led to higher long-term U.S. yields. In Asian markets, 10-year yields hovered at 4.0856%, slightly below the nine-month high of 4.1260% reached the previous night. Moreover, 30-year yields were up 2 basis points at 4.1847%, nearing the highest level since November.

U.S. Dollar Remains Buoyant, Australian Dollar Weakens

The U.S. dollar remained strong in Asia, reaching a one-month high of 102.63 against major peers. This boost comes after strong private payrolls data, which added to signs of labor market resilience in the U.S. The closely-watched U.S. nonfarm payrolls report is set to be released on Friday.

On the other hand, the risk-sensitive Australian dollar broke a key support level. It hovered at $0.6532, just above its 2023 low of $0.6459.

Bank of England’s Interest Rate Decision

The Bank of England is expected to raise interest rates later in the day. Most analysts anticipate a quarter-point hike, pushing rates to a 15-year high of 5.25%. However, there remains a risk of a repeat of June’s surprise half-point increase, which could fuel speculation that major central banks are not yet done tightening monetary policy.

Easing Cycle Begins in Emerging Markets

Brazil’s central bank made a significant move by cutting its benchmark interest rates for the first time in three years. The cut was larger than expected, at 50 basis points, marking the beginning of an easing cycle in emerging markets now that U.S. rates have likely peaked.

Oil Prices and Gold Prices

Oil prices experienced a marginal increase, as the market weighed bullish U.S. inventory data and the possibility of an extension of OPEC+ output cuts. Brent crude futures were up 0.2% at $83.33 per barrel, while U.S. West Texas Intermediate crude futures rose 0.1% to $79.6.

Meanwhile, gold prices edged up 0.1% to $1,936.19 per ounce.