Asian stock markets mostly dipped on Wednesday following a significant drop in U.S. equities, despite reports revealing stronger-than-expected U.S. job market and business activity data. While Asian shares faced pressure, U.S. futures and oil prices edged higher.
Japan, Hong Kong, and China Experience Losses
Japan’s Nikkei 225 index remained largely unchanged, settling at 40,079.09. The Japanese yen weakened slightly against the dollar, with the exchange rate rising to 158.19 yen, up from 158.06 yen the previous day. Meanwhile, Hong Kong’s Hang Seng index fell 1.6% to 19,137.88, and China’s Shanghai Composite lost 1.5%, closing at 3,182.49. Chinese tech giant Tencent saw a decline of 2.1%, while CATL, the world’s largest battery maker, lost 1.4%. These declines follow a U.S. Department of Defense report linking both companies to China’s military.
Adding to the economic uncertainty, market watchers are anticipating potential shifts in trade policies and tariffs as President-elect Donald Trump prepares to assume office. These developments are expected to further complicate the outlook for the world’s second-largest economy.
South Korea and Australia Post Gains
In contrast, South Korea’s Kospi index rose 1.2%, closing at 2,522.75, and Australia’s S&P/ASX 200 gained 0.7%, finishing at 8,348.60.
U.S. Markets Struggle Amid Rising Bond Yields
On Tuesday, U.S. stocks closed lower, with the S&P 500 falling 1.1% to 5,909.03, after reversing earlier gains. The Dow Jones Industrial Average slipped 0.4% to 42,528.36, and the Nasdaq Composite tumbled 1.9%, ending at 19,489.68. The declines were largely attributed to the sharp rise in bond yields, which spiked following positive economic reports that suggested a stronger-than-expected recovery in the U.S.
Two key reports contributed to this shift: one indicated that U.S. employers had more job openings than expected at the end of November, and another showed that business activity in services sectors such as finance and retail grew faster than anticipated in December. While these reports are positive for job seekers and indicate a potential easing of recession fears, they also raise concerns about inflationary pressures. The solid performance of the economy may prompt the Federal Reserve to slow down its planned interest rate cuts, which had been a source of relief for investors.
Impact of Inflation and Interest Rates on Markets
The Federal Reserve, which began cutting its main interest rate in September to support economic growth, has hinted that the pace of easing could slow. The looming threat of tariffs from President-elect Trump also adds to inflation concerns, particularly as inflation has stubbornly remained above the Fed’s 2% target. A report from the Institute for Supply Management on Tuesday highlighted further inflationary pressures, noting that price increases in services accelerated in December.
Market expectations for fewer interest rate cuts in 2025 have been building for weeks, driving long-term Treasury yields higher. Concerns about possible tax cuts under the Trump administration, which could increase the U.S. government’s debt and push yields up further, have also added to the upward pressure on bond yields.
These higher yields make Treasury bonds more appealing to investors compared to stocks, which in turn puts downward pressure on equity prices. The yield on a 10-year Treasury note climbed to 4.69%, up from 4.63% just before Tuesday’s economic reports, and from 4.15% in early December.
Shifting Market Sentiment and Job Report Expectations
With fears of a U.S. economic slowdown subsiding and long-term Treasury yields firmly above 4.50%, Bank of America strategists, led by Ohsung Kwon, suggest the market is entering a “good news is bad news” phase. This shift in sentiment raises the stakes for the upcoming U.S. job market report, due on Friday. Economists expect a slowdown in overall hiring, with an anticipated gain of 156,500 jobs in December, according to FactSet.
Energy and Currency Markets
In energy trading, benchmark U.S. crude oil rose by 37 cents, reaching $74.62 a barrel, while Brent crude, the international benchmark, added 29 cents to $77.34 a barrel.
On the currency front, the euro strengthened slightly against the dollar, with the exchange rate rising to $1.0347 from $1.0341.
As markets navigate this complex economic landscape, investors are closely monitoring the evolving bond market and upcoming reports, with particular attention to how the Fed and future policies could influence market dynamics.
Related topic:
Tesla Shares Rebound, Key Price Levels to Watch
South Korea’s Resilient Financial Markets Weather Political Turmoil
