Asian stocks faced a downturn on Tuesday, mirroring the declines witnessed in European stocks and bonds, influenced by a more cautious approach from European Central Bank (ECB) officials regarding the prospects of rapid rate cuts.
Australian and Japanese shares experienced losses, while US equity contracts edged lower following a Monday holiday. In their first trading session since Friday, Treasuries dipped alongside a selloff in Australian and New Zealand sovereign bonds.
The Euro Stoxx 50, representing a region-wide index in Europe, traded lower on Monday, partly attributed to a contraction in German gross domestic product in the fourth quarter. Despite this contraction, Germany, the largest economy in Europe, managed to avoid slipping into a recession.
Oil prices, despite a Monday retreat, remained steady amidst tensions in the Red Sea. Houthi militants targeted a US-owned commercial vessel with a ballistic missile, highlighting risks to one of the world’s crucial trade routes. West Texas Intermediate hovered just below $73 a barrel, while Brent crude remained above $78.
Saqib Iqbal, an analyst at Trading.Biz, emphasized, ‘Despite the conflict leading to the suspension of certain Red Sea routes, global oil supplies have not been significantly impacted.’ Attention now shifts to key economic data releases from the US and China, offering insights into potential demand.
In Germany, bunds experienced a decline on Monday, underlining the disparity between market expectations of ECB rate cuts and a less optimistic outlook among economists. While the market anticipates around six cuts, economists polled by Bloomberg view four 25 basis point reductions as a more realistic scenario.
ECB Governing Council member Robert Holzmann suggested that rate cuts this year were not guaranteed, citing persistent inflation and geopolitical risks in Monday’s comments. This echoes earlier statements from ECB President Christine Lagarde, cautioning against premature discussions about trimming borrowing costs.
China’s economic data remains a focal point, with expectations of improvements in GDP, industrial production, and retail sales. Some investors are turning bullish on China’s stock market, considering it undervalued. Bell Asset Management and Abrdn Plc are among those reassessing their positions.
In the commodities market, gold saw a slight decline after a Monday rally, and Bitcoin maintained stability around $42,500. European natural gas futures slumped to the lowest level since August, reflecting the region’s success in bolstering supplies since the 2022 energy crisis.
In corporate news, Apple Inc. is planning to remove its blood-oxygen feature from its latest smartwatches to circumvent a US ban if an appeal of the decision fails.
