MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.2% in early trade, after US stocks ended the previous session lower. The S&P 500 was down 0.6%, marking its biggest one-day loss in three weeks.
Australian shares led declines in early Asian trading down 0.7% ahead of the release of CPI data later today, while Japan’s Nikkei stock index slid 0.4%. US stock futures were flat.
The greenback stabilised but remained on the defensive after two consecutive days of decline, with the US dollar index last up 0.1% at 97.301. Against the yen, the dollar was last down 0.1% at 147.575, as traders parsed messages from Federal Reserve officials.
“Chair Powell in his speech emphasised that ‘near-term risks to inflation are tilted to the upside and risks to employment to the downside’, highlighting the challenges of balancing the Fed’s dual mandate in the current environment,” Westpac analysts wrote in a research note.
Asian stocks are pausing for breath after hitting a four-year high and remain on track this month for their best monthly performance in a year, following weakness in the US dollar, a surge in regional technology stocks and a resumption of the Federal Reserve’s policy easing cycle.
Traders have ramped up bets on further easing, with Fed funds futures implying a 93% chance of a rate cut at the US central bank’s October meeting, up from a 89.8% probability on Tuesday.
US Treasury bonds attracted bids across the curve, with the yield on benchmark 10-year Treasury notes falling to 4.1061%, compared with its US close of 4.118% on Tuesday. The two-year yield, which rises with traders’ expectations of higher Fed funds rates, fell to 3.5673% compared with a US close of 3.592%.
US economic data released on Tuesday stoked growth concerns, with purchasing managers’ index (PMI) data from S&P Global showing US business activity slowed for a second straight month in September.
“The S&P PMIs were softer in the September preliminary release, but both remain in expansion and are within the range of the last few months,” Citi analysts wrote in a research note. But they pointed to more weakness in the details than implied in the headline numbers.
“The composite output prices index fell to the lowest level since April with anecdotes mentioning that firms are having difficulty passing on higher costs to consumers due to weak demand and more competition,” the analysts said.
In oil markets, Brent crude was last up 0.3% at US$67.86 per barrel, after a deal to resume exports from Iraq’s Kurdistan stalled, pacifying some investor concerns that the restart would exacerbate worries about global oversupply.
Gold was slightly lower after hitting a record high on Tuesday, with spot gold last down 0.1% at US$3760.90 per ounce.