Asian equities suffered a setback for the second consecutive day, mirroring the pause in Wall Street’s stocks after their notable weekly rally – the longest for this year. Tensions in the markets escalated with bonds witnessing a plunge due to the deflating expectations of Federal Reserve rate cuts.
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Shares in Australia, Japan, and South Korea experienced declines, while futures for benchmarks in Hong Kong signaled losses. This followed a retreat of US equities from the brink of becoming overbought after a relentless climb to record highs.
US 10-year yields surged by 11 basis points to reach 4.20%, reflecting the market’s adjustment to a slower pace of monetary policy easing. Traders factored in uncertainties surrounding the extent to which the Federal Reserve would slash rates, as highlighted by Federal Reserve Bank of Kansas City President Jeffrey Schmid’s preference for a more cautious approach.
A myriad of factors converged to propel the bond selloff, including concerns regarding supply dynamics and optimistic US economic indicators. Chris Weston, Head of Research at Pepperstone Group Ltd., outlined these factors in a note, attributing the trend to a combination of supply worries and robust US data.
In light of upcoming US elections, traders are bracing for potential market impact, particularly in anticipation of a ‘Red Sweep,’ where Republicans could clinch both the White House and the Congress.
The stimulus measures implemented by Beijing to revitalize its slowing economy remain a focal point in Asia. A recent move saw Chinese banks reducing benchmark lending rates after a series of central bank interventions aimed at stabilizing the housing market.
Investors are keeping a keen eye on the upcoming election in Japan, with signals pointing to diminishing support for Prime Minister Shigeru Ishiba’s administration. This could lead to a weakened and unsteady governmental structure post-election.
This week, a slew of major earnings reports is expected from significant players such as Tesla Inc., Boeing Co., and United Parcel Service Inc. These results will be closely scrutinized as they are seen as pivotal in influencing market dynamics.
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