27-6-2023 (HONG KONG) Asian stocks experienced a shaky start on Tuesday (Jun 27) as investors awaited signals regarding the interest rate outlook and grew cautious about China’s fragile economic recovery, along with developments in Russia following an aborted mutiny. MSCI’s gauge of Asia Pacific stocks outside Japan showed a marginal increase of 0.08 percent at 1:26 am GMT (9:26 am, Singapore time) after a slight drop of 0.06 percent an hour earlier. In contrast, Japan’s benchmark Nikkei average witnessed a decline of up to 1 percent.
The risk-averse behavior witnessed on Wall Street has influenced Asian equities, leading to expectations of a downturn on Tuesday, according to Anderson Alves, a global macro analyst at ActivTrades. On Monday, all three major US stock indexes closed in the red, with the tech-heavy Nasdaq experiencing the most significant decline due to the downward pull of megacap momentum stocks. The Dow Jones Industrial Average fell 0.04 percent, the S&P 500 lost 0.45 percent, and the Nasdaq Composite dropped 1.16 percent.
Alves highlighted the prevailing sense of caution among investors regarding the global economy’s trajectory in the coming months. The potential threat of a recession during a high-interest rate cycle, enforced by central banks, could significantly impact the United States and Europe, thereby affecting global trade, financing conditions, and demand.
Despite losses over the past four sessions, the Hang Seng Index and China’s benchmark CSI300 Index managed to open up by 0.3 percent and 0.1 percent, respectively. However, S&P Global revised down its forecast for China’s economic growth in 2023 to 5.2 percent from the previous estimate of 5.5 percent, signaling the uneven nature of the country’s recovery from the pandemic. This marked the first time this year that a global credit ratings agency reduced China’s growth forecast, following similar downgrades by major investment banks such as Goldman Sachs.
Investors are also closely monitoring the end-of-quarter rebalancing flows in US stocks, as noted by Redmond Wong, market strategist Greater China at Saxo Markets. The anticipated rebalancing is expected to significantly impact market dynamics as traders prepare for potential shifts in stock prices and overall market sentiment. The convergence of month-end and quarter-end adds an element of anticipation and uncertainty for market participants.
In addition to economic concerns, geopolitical turmoil has dampened risk appetite following an aborted mutiny in Russia over the weekend, which revealed potential cracks in President Vladimir Putin’s hold on power. Although the situation has subsided, any future insurrection against Russia could trigger a defensive reaction, leading investors to seek safe-haven assets.
In energy markets, US crude rose by 0.61 percent to $69.79 a barrel, while Brent gained 0.53 percent, reaching $74.57 a barrel, erasing earlier gains. Spot gold also experienced an increase of 0.32 percent, reaching $1,928.9 per ounce.
Regarding currency markets, the dollar index showed a minor increase of 0.029 percent. In early Asian trade, ten-year US Treasury yields remained steady at 3.7154 percent, while two-year yields fell by 7 basis points to 4.671 percent.
