Asian stock markets experienced a decline on Thursday as the dollar remained near three-month highs and U.S. Treasury yields increased, fueled by uncertainty surrounding the U.S. election outcome. Despite this unease, Tesla’s stronger-than-expected earnings provided a glimmer of optimism for investors.
The combination of rising U.S. Treasury yields, election-related uncertainty, and heightened expectations regarding the Federal Reserve’s cautious approach to interest rate easing has dampened market sentiment. Concerns are also growing about the potential return of Donald Trump to the presidency.
Shares of Tesla surged by 12% in after-hours trading after the electric vehicle manufacturer reported robust profits for the third quarter and surprised analysts with a forecast predicting sales growth of 20-30% in the coming year.
Futures for the Nasdaq rose by 0.5%, while S&P 500 futures increased by 0.2%. U.S. stocks had faced three consecutive days of declines, particularly impacting major tech companies collectively known as the “Magnificent Seven.” Nvidia, for instance, saw its shares drop nearly 3% ahead of its earnings report.
In Asia, Tokyo’s Nikkei index rebounded from earlier losses to gain 0.2%. However, the MSCI Asia-Pacific index, excluding Japan, fell by 0.3%, pressured by declines in Chinese equities. Hong Kong’s Hang Seng index dropped 1.3%, while China’s blue-chip stocks slipped 0.8%.
“Although the fundamentals remain strong and should support the continuation of this bull market, short-term event risks are now being reflected in asset prices, leading traders to take profits and move to cash,” said Kyle Rodda, a senior analyst at Capital.com.
Additionally, U.S. bond yields continued their upward trend, with benchmark 10-year Treasury yields rising 16 basis points this week to 4.23%, nearing a three-month high of 4.26%. While U.S. yields held steady during early Asian trading, regional bond markets continued to decline, with Australian 10-year bond futures down for the third consecutive day, hitting a low of 95.50, the weakest level since May.
Tiffany Wilding, an economist at PIMCO, advised investors to be cautious about interpreting the recent rise in bond yields, noting that historical trends suggest no consistent correlation between changes in 10-year yields and the magnitude of future rate cuts by the Fed following its first cut.
Nonetheless, strong economic data have led traders to question whether the Fed can afford to implement deep rate cuts during its remaining two meetings this year, with swaps currently indicating only 40 basis points of easing.
The elevated yields have provided support for the dollar, which surged by 1.1% against the yen overnight, crossing above the significant 153 level before settling at 152.655. The yen weakened against multiple currencies after Bank of Japan Governor Kazuo Ueda indicated that achieving the central bank’s inflation target would take time. Both the euro and the Australian dollar reached three-month highs against the yen overnight.
The rise in the dollar curtailed gold’s impressive rally, with prices falling more than 1% overnight from a record high of $2,758.37 per ounce. However, gold rebounded slightly, climbing 0.2% on Thursday to $2,723.44.
Meanwhile, oil prices, which initially dropped due to a significant increase in U.S. crude stocks, regained some ground, with Brent futures rising by 1% to $75.72 per barrel.
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