HONG KONG: Asian shares fell on Wednesday as investors failed to find any cheer in strong U.S. economic data and instead considered what this could mean for a hawkish Federal Reserve, with a surge in the dollar weighing heavily on regional currencies.
Following losses on Wall Street, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.5% in early trade, while Japan’s benchmark Nikkei (.N225) opened 1.12% lower.
Fixed income markets were under pressure, with the U.S. 10-year Treasury yield rising to 3.365% on Wednesday, its highest since June 16.
Overnight data showed that the U.S. services sector rebounded for a second straight month in August on strong orders growth and employment.
While this reinforces the view that the economy is not in recession, it also adds to expectations that the Fed will not slow the pace of rate hikes anytime soon.
“Good news for the real economy has now turned into bad news for the market — both for the bond market and the stock market,” said Redmond Wong, Greater China market strategist at Saxo Capital Markets in Hong Kong.
He added that last week’s weaker-than-expected jobs data had fueled hopes that the Fed might consider a soft landing and slow the pace of rate hikes, but on the new data set “that hope has all but disappeared again.”
“The investors we talked to … have lost quite a bit of confidence in the (stock) market,” Wong said, adding that investors had shown renewed interest in high-grade bonds to gain from coupons Get cash flow.
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Hong Kong stocks (.HSI) fell 1.35%, with its main technology index down 1.9%.
China’s benchmark index (.CSI300) edged down 0.11% on worries about the imposition of new COVID restrictions in major mainland cities such as Guiyang following a complete lockdown in the southwestern city of Chengdu.
Asian currencies fell against the dollar as U.S. bond yields surged.
The yen hit a new 24-year low of 143.57 against the dollar, while the yuan fell 0.25% to 6.96 against the dollar, approaching the important psychological level of 7.
Chinese authorities have already expressed concern about a sharp devaluation of the yuan.
In energy markets, crude oil prices stumbled on weak consumption forecasts. U.S. crude was down 1.22% at $85.8 a barrel, while Brent was at $92, down 1% on the day.
Spot gold was down 0.4% at $1,694 an ounce.