Asian markets saw declines on Wednesday, following the significant losses on Wall Street, as investors reevaluated their expectations for early interest rate cuts by the Federal Reserve. Doubts arose, particularly ahead of crucial economic indicators scheduled for release later this week.
Concerns about a slowdown in China’s growth persisted after weak official purchasing managers index (PMI) readings earlier this week. The Chinese government’s downgrade of the gross domestic product (GDP) figure for 2022 added to apprehensions, potentially indicating a challenging outlook for 2023.
In China, the Shanghai Shenzhen CSI 300 index dipped by 0.2%, remaining near a five-year low, while the Shanghai Composite index traded flat. Both indexes faced substantial losses in 2023.
The technology sector, echoing a decline in U.S. majors, took the brunt of the hit in Asian markets. South Korea’s KOSPI experienced a 1.7% slide, and Hong Kong’s Hang Seng index dropped by 1.1%.
Major Apple Inc (AAPL) suppliers suffered losses after Barclays downgraded the tech giant, citing an anticipated slowdown in device sales. Heavyweights such as Samsung Electronics Co Ltd, AAC Technologies Holdings Inc, SK Hynix Inc, and TSMC, the world’s largest contract chipmaker, all faced declines.
The tech sector was additionally pressured by the anticipation of the Federal Reserve’s December meeting minutes, set to be released later on Wednesday. Analysts warned that the minutes might not align with the dovish expectations of the markets.
While the Fed signaled rate cuts in 2024, it provided limited insights into the timing of these cuts. Recent warnings from Fed officials suggested that expectations for early rate cuts might be overly optimistic, considering persistent high levels of inflation and a robust labor market.
Market expectations of early interest rate cuts had fueled a robust rally in global stock markets throughout December. However, this left markets susceptible to sharp pullbacks in the face of uncertainties about the timing of rate adjustments.
The CME Fedwatch tool indicated that traders were still pricing in nearly a 70% chance of a 25 basis point rate cut in March.
Investors were also eagerly awaiting key nonfarm payrolls data, expected to reveal signs of a cooling labor market. However, concerns lingered over a stronger-than-expected reading, as payrolls consistently exceeded expectations throughout 2023.
Australian stocks, represented by the ASX 200, retreated 1% from a 2-½ year high. Futures for India’s Nifty 50 index indicated a weak start, potentially influenced by profit-taking after robust gains in 2023.
Japanese markets were closed for a week-long holiday, but futures for the Nikkei 225 index showed a 0.4% increase, hinting at a positive opening.