Asian stocks stumbled on Tuesday as the court-ordered liquidation of property giant China Evergrande weighed on sentiment while geopolitical tensions lifted oil prices and dented risk appetite ahead of the Federal Reserve's meeting
U.S. Treasury yields remained under pressure in Asian hours,
keeping a lid on dollar movement, after the Treasury Department said it would
need to borrow less than its previous estimates.
Uncertainty around how the court order to liquidate
Evergrande Group (3333.HK), opens new tab will play out and its impact on the
nation's fragile property market is keeping investors on edge.
Hong Kong's Hang Seng index (.HSI), opens new tab shed 1.7%,
with the mainland properties index (.HSMPI), opens new tab down 3%. China
stocks (.SSEC), opens new tab fell 0.69% and were on course for a near 4% drop
for the month.
China's 10-year government bond yield dropped to the lowest
in more than two decades as investors still expect more policy easing to defend
equity markets after Beijing announced a cut to bank reserves last week.
"The latest development is a reminder of the risks of
investing in the Chinese real estate sector and the challenges that the sector
faces on the road to recovery," said Vasu Menon, managing director of
investment strategy at OCBC Bank in Singapore.
China and Hong Kong stocks dragged MSCI's broadest index of
Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab down 0.4%.
Japan's Nikkei (.N225), opens new tab was up 0.11%, set for a nearly 8% gain
for the month.
European bourses though are expected to shrug off the weak
sentiment seen in Asia and open much higher, with Eurostoxx 50 futures up
0.43%, German DAX futures 0.40% higher and FTSE futures up 0.54%.
Overnight, the S&P 500 (.SPX), opens new tab notched yet
another record high close, as market participants looked ahead to this week's
slew of megacap earnings, including results from Microsoft (MSFT.O), opens new
tab and Alphabet (GOOGL.O), opens new tab later on Tuesday.
While the Federal Reserve's policy meeting and Chair Jerome
Powell's commentary will likely be the main event of the week, investors will
also watch out for European inflation data, Bank of England policy meetings and
the U.S. employment report this week to help gauge the direction markets will
take in the months to come.
"The Fed is expected to signal that though interest
rates may have reached their peak, the central bank is not in a hurry to reduce
them," said Gary Dugan, CIO at Dalma Capital. "A resurgence in
economic growth could further strain the already tight labour market,
potentially driving wages up."
The Fed in December surprised market with its dovish tilt,
projecting 75 basis points of interest rate cuts in 2024, sparking an
blistering year-end risk rally, with traders pricing in easing as early as
March.
But since then, a slate of strong economic data, sticky
inflation and pushback from central bankers have led markets to significantly
dial back their expectations.
Markets now expect 47% chance of a Fed rate cut in March,
the CME FedWatch tool showed, down from 88% a month earlier. They currently
anticipate 134 bps of cuts in the year, compared with 160 bps of easing a month
earlier.
In the currency market, the dollar index , which measures
the U.S. currency against six rivals, was steady at 103.51. The yield on
10-year Treasury notes extended its slide and was down 4 basis points to
4.051%.
The euro last bought $1.0823, near a seven-week low of
$1.07955 it touched on Monday as traders adjust their expectations of when the
European Central Bank will start cutting interest rates.
Investor jitters on rising tensions in Middle East has kept
risk sentiment in check and fuelled supply concerns in the oil markets.
The United States vowed to take "all necessary
actions" to defend American forces after a drone attack killed three U.S.
troops in Jordan.
U.S. crude rose 0.6% to $77.24 per barrel and Brent was at
$82.78, up 0.46% on the day.