Apple signage on floor of the New York Stock Exchange in New York, US, on Tuesday, 2 January 2023. An Asian equity gauge lost 0.7% as benchmarks in Japan, South Korea, Australia and Hong Kong all declined, while US share futures also slipped. Contracts for European stocks edged lower, extending a decline in the prior session, after European Central Bank officials pushed back against rate-cut bets.
Treasuries fell across the curve in the first trading day since Friday. 10-year yields rose around six basis points, while those for policy-sensitive 2-year debt advanced by the same amount. Australian and New Zealand sovereign bonds also joined the selloff.
The rise in US yields helped support the greenback, which strengthened for a third session against major currencies. The South Korean won fell to a level not seen in a month against the dollar. Traders now look to Federal Reserve governor Christopher Waller’s speech later on Tuesday on whether there will be more pushback against bets of a rate cut in March.
“It might just be that the market is finally out of a hungover mood and having their clarity moment” that the Fed might not be cutting rates at all this year, said Mingze Wu, a currency trader at Stonex Financial Pte. in Singapore.
Oil prices retreated, even as tensions in the Red Sea endured. Houthi militants hit a US-owned commercial vessel with a ballistic missile on Monday, underscoring the risks facing one of the world’s most important trade routes. West Texas Intermediate traded just above $72 a barrel, while Brent crude was around $78.
“Despite the conflict leading to the suspension of certain Red Sea routes, global oil supplies have not been significantly impacted,” Saqib Iqbal, an analyst at Trading.Biz, said in a note. “The focus shifts to key economic data releases from the US and China, providing valuable insights into potential demand.”
In Germany, bonds fell on Monday in a decline that highlights a chasm between market expectations of ECB rate cuts and a less optimistic outlook among economists. The market is pricing in around six cuts, while economists polled by Bloomberg see four 25 basis point reductions as a more realistic scenario.
ECB Governing Council member Robert Holzmann indicated cuts this year were not assured given lingering inflation and geopolitical risks, in Monday comments. The sentiments echo prior comments from ECB President Christine Lagarde in warning that it’s too early to talk about trimming borrowing costs.
READ: A Pessimist’s Guide to Global Economic Risks in 2024
Meanwhile, China remained firmly in focus. The country is set to publish data showing improvements in gross domestic product, industrial production and retail sales on Wednesday, helped by a low base of comparison when pandemic restrictions hampered economic activity. Some investors are also turning bullish on the country’s beaten-down stock market.
Bell Asset Management Ltd., a long-time bear, is now scouring the market as stocks are “just so cheap”, while Abrdn Plc is looking to gain exposure via options.
“We were neutral for the last three quarters but we are now starting to see value,” said Louis Luo, head of multi-asset investment solutions for Greater China at Abrdn. “We are thinking about buying some upside protection” in case the stock market surges and weighs on relative performance for emerging market funds, he said.
In other commodities, gold edged lower after a Monday rally and Bitcoin was steady at around $42,500.
In corporate news, Apple Inc. is planning to remove its blood-oxygen feature from its latest smartwatches to get around a US ban of the devices if an appeal of the decision fails.