Asian shares fell broadly on Wednesday, while the Australian dollar fell after unexpectedly low domestic inflation data, and short-term Treasury yields remained elevated ahead of the Federal Reserve’s rate decision.
Chinese markets wobbled after an official factory survey revealed that China’s manufacturing activity contracted for the fourth consecutive month in January.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.5% and was on track for a 5% monthly loss, ending a two-month winning streak.
This was due in part to a sharp selloff in Chinese markets, which was fueled by concerns about the lack of large stimulus measures by authorities to boost the economy and dwindling investor confidence.
Concerns about the country’s struggling property sector persisted, as investors waited to see how the liquidation of China Evergrande Group (3333.HK) would play out.
China’s blue-chip index (.CSI300), which fell to its lowest level since 2019, was 0.7% lower on the day and down about 6% in January, marking its sixth consecutive monthly decline.
Hong Kong’s Hang Seng Index (.HSI)shed more than 1%, weighed down by property and tech names, and was on track for its worst January performance since 2016.
Beijing has intervened to support its sliding stock market, including a significant reduction in bank reserve requirements.
“There’s a patently clear sign in my mind (that) they don’t want the market to go down anymore,” Mark Matthews, Bank Julius Baer’s Asia head of research, said at an outlook briefing in Singapore on Tuesday.
“Up until last week, they somehow thought that they could get away with just little dribs and drabs, and somebody must have decided somewhere that actually, no, we have to do more.”
Japan’s Nikkei (.N225), which has been one of Asia’s standouts in recent years, appeared to be on track to end the month with a more than 7% gain, its best January performance in over 10 years.
The index was last down 0.5% as expectations rose for an impending BOJ monetary policy pivot.
A summary of the central bank’s January policy meeting, released on Wednesday, revealed that policymakers discussed the likelihood of a near-term exit from negative interest rates as well as potential scenarios for phasing out the bank’s massive stimulus program.
Following the release of the minutes, the yen advanced marginally, closing at 147.62 per dollar.
Nonetheless, the currency was on track for a monthly loss of more than 4% due to a resurgence in the dollar and the fact that Japan and the United States continue to have significant interest rate differentials.
The Australian dollar was last down 0.6% at $0.6564 after data on Wednesday showed Australian consumer price inflation slowed more than expected in the fourth quarter to a two-year low, raising expectations of imminent rate cuts.
Other market movements were muted as traders remained cautious ahead of the Fed’s rate decision later in the day, with expectations that the central bank would keep rates on hold.
The focus, however, will be on Fed Chair Jerome Powell’s post-meeting press conference, as well as any hints from policymakers about when the Fed may begin easing rates.
“It’s too early to claim victory on inflation… Therefore, we expect some persisting hints of tough language at this week’s FOMC,” said Benoit Anne, managing director in the investment solutions group at MFS Investment Management.
“But there is nothing to worry about. The macro backdrop is as good as we have seen in a very long time, characterized by diminished recession risks and favorable disinflation dynamics.”
Data released on Tuesday showed that U.S. job openings unexpectedly increased in December, and data for the previous month was revised higher, pointing to a still-resilient labor market that will allow the Fed to keep rates higher for longer.
This boosted the two-year Treasury yield, which typically reflects short-term interest rate expectations. It was last at 4.3345%, up more than eight basis points on the month.
The US dollar remained broadly stable, with the euro down 0.18% to $1.0823. Sterling fell 0.17 percent to $1.26795.
Oil prices fell after rising the day before, as tensions in the Middle East remained high.
Brent futures declined 38 cents to $82.49 per barrel. U.S. crude fell 32 cents to $77.50 per barrel.
Gold last traded at $2,033.94 per ounce, retreating from a two-week high set in the previous session.