Asian stock markets faced challenges on Wednesday as Wall Street futures dropped due to disappointing earnings. The dollar weakened against the yen after a decline in Treasury yields.
Investors reacted with indifference to President Donald Trump’s unexpected comments about the U.S. wanting to take control of the war-torn Gaza Strip for economic development.
This suggestion raised concerns about potential policy uncertainty and increased market volatility.
The mood improved slightly when Beijing set a strong fix for its yuan. This move alleviated fears that China might allow its currency to depreciate to mitigate the effects of tariffs on exports.
So far, China’s response to Trump’s additional 10% tariffs has been relatively restrained. The country announced levies affecting only $14 billion of U.S. exports to China.
Julian Evans-Pritchard, head of China economics at Capital Economics, commented, “The measures are fairly modest, at least relative to U.S. moves, and have clearly been calibrated to try to send a message to the U.S. without inflicting too much damage.”
He also noted, “The risk is that China’s retaliation proves too modest to exert any real pressure on the U.S. to reverse tariffs, but sufficiently defiant to trigger a further escalation.”
A recent survey indicated that China’s services activity grew at a slower pace in January, but analysts believe this slowdown is largely due to the timing of the Lunar New Year holidays.
Chinese blue chips returned from the holiday with a slight dip of 0.2%.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose by 0.6%, while South Korea’s main index increased by 1.2%. Japan’s Nikkei (.N225) remained flat as the yen strengthened and local bond yields increased.
EUROSTOXX 50 futures dropped by 0.5%, FTSE futures fell by 0.2%, and DAX futures declined by 0.4% due to ongoing concerns about U.S. trade taxes.
YEN SURGES
After a bounce on Tuesday, Wall Street futures faced selling pressure when Alphabet’s earnings fell short of expectations. The company increased its capital expenditures, causing its shares to plummet by 7.6% in extended trading. This decline erased $192 billion from its market capitalization.
In response, S&P 500 futures decreased by 0.4%, and Nasdaq futures lost 0.5%. Upcoming results from companies such as Uber, Ford, Qualcomm, and Walt Disney are anticipated.
The delays in tariffs affecting Canada and Mexico have eased concerns that the Federal Reserve would be severely limited in its ability to cut interest rates. This situation prompted a rebound in fund futures.
Yields on two-year Treasuries fell to 4.224%, down from a peak of 4.282% reached on Monday.
The decrease in yields coincided with a retreat in the dollar, with the dollar index dropping to 108.050 from Monday’s high of 109.880.
The euro strengthened to $1.0380, marking a significant recovery from the two-year low of $1.0125 earlier in the week. Similarly, the dollar declined to 1.4327 Canadian dollars from a 22-year high of 1.4792.
The dollar also fell by 0.7% against the Japanese yen, reaching a seven-week low of 153.09 and breaking the support level at 153.72.
Japanese government bond yields surged to new multi-year highs as positive wage data bolstered expectations of further tightening by the Bank of Japan this year.
In commodity markets, gold reached a new all-time high of $2,848 an ounce, partly due to the dollar’s decline and lower yields.
Oil prices faced pressure from China’s tariffs on U.S. oil imports but received some support from reports that Trump had reinstated his “maximum pressure” campaign on Iran, aiming to drive Iranian oil exports to zero.
Brent crude fell by 35 cents to $75.85 a barrel, while U.S. crude lost 22 cents, settling at $72.48 per barrel.
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