Asian shares fell on Tuesday following hawkish comments from two U.S. Federal Reserve officials overnight with investors turning cautious ahead of key inflation data, while China’s reopening after COVID-19 restrictions pushed commodities higher.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.02% in early trade.
“The main theme overnight was cautiousness in the equity space as stocks pared gains after hawkish comments from two Fed officials. Raphael Bostic and Mary Daly said the Fed would likely hike (interest) rates to above 5% and hold them there for some time,” Commerzbank said in a client note.
The S&P500 index began the week on a bullish tone with a more than 1.4% increase in early U.S. trading on Monday before giving up all the gains to close a touch lower.
The U.S. dollar and U.S. treasury yields remained under pressure, with the yield on U.S. 10-year notes edging higher on Tuesday by 1.14 basis point to 3.5284%, from 3.517% late on Monday. The dollar index fell 0.068%.
“Sentiment may turn more cautious ahead of the U.S. CPI (consumer price index) release on Thursday, dampening the ‘risk on’ trades initiated as a result of the optimism around China’s reopening,” Mizuho Bank said in a note.
If U.S. consumer price data confirms cooling seen in the most recent monthly jobs report, Atlanta Fed Bank President Bostic said he would have to take a quarter point increase “more seriously and to move in that direction”.
China’s reopening buoyed sentiment with its stocks rising for a sixth consecutive session on Monday, while Hong Kong shares jumped to a six-month high. However, any optimism may be short-lived, said Trinh Nguyen, emerging Asia economist at Natixis in Hong Kong.
“I think what would temper a lot of this optimism coming up is really the reality of this opening up. Even in Hong Kong, although it is officially open, the visa issuance has been rather slow,” Nguyen said.
China’s benchmark dipped 0.21% on Tuesday while Hong Kong’s Hang Seng index fell 0.85%.
Copper prices hit their highest in more than six months, driven higher by an improving demand outlook after top consumer China’s reopening, while zinc climbed 5% to its highest since Dec. 15.
Japan’s Nikkei rose 0.57%, bucking the regional trend.
Core consumer prices in Tokyo, released on Tuesday, rose a faster-than-expected 4.0% in December from a year earlier, underpinning market expectations that the Bank of Japan may phase out its massive stimulus by tweaking its yield curve control policy.
In Australia, shares lost 0.19% in early trading.
Oil prices were little changed on Tuesday as traders awaited clarity on rate hikes. U.S. crude fell 0.07% to $74.58 per barrel and Brent was at $79.51, down 0.18%.
Gold prices inched higher, adding 0.1% to $1,872.66 an ounce.