Asia Shares Slip on Middle East Tensions and Rising Yields
Asian shares hit one-year lows as Middle East tensions escalate
Asian shares fell to their lowest levels in a year on Monday due to growing concerns about a wider conflict in the Middle East. The increasing tensions clouded market sentiment, especially with a week full of crucial data on U.S. growth, inflation, and tech company earnings. The risk of a wider conflict in the Middle East overshadowed the market, impacting Asian shares.
Bond yields rise, putting pressure on equity valuations
Besides Middle East tensions, bond yields also surged, creeping closer to 5.0%. The rise in yields pushed borrowing costs up globally, which in turn tested equity valuations. The tightening of monetary conditions due to this surge in bond yields allowed the Federal Reserve to signal that it will likely keep its policy meeting next week on hold. Furthermore, there is a 70% chance that the Fed is done tightening for this cycle, with the possibility of rate cuts from May next year.
Central bank meetings and earnings reports to impact markets
Investors are closely watching the policy meetings of the European Central Bank and the Bank of Canada. Though no rate hikes are expected, market participants are sensitive to any guidance on future moves. Additionally, a rush of earnings reports from tech giants like Microsoft, Alphabet, Amazon, and Meta Platforms is anticipated. IBM and Intel are also on the docket.
Strong U.S. growth and productivity gains
Profits are expected to be supported by robust consumer demand, with U.S. gross domestic product figures for the third quarter forecasted to show annualized growth of 4.2%. Nominal annualized growth could even reach as high as 7%. The rise in hours worked indicates a surge in productivity gains and corporate profits, reinforcing the resilience of the U.S. private sector.
Impacts on currency, gold, and oil markets
The U.S. outperformance has strengthened the dollar, while the threat of Japanese intervention has capped its rise against the yen. Yields in Japan are also on the rise, as the Bank of Japan discusses a further tweak to its yield curve control policy. The euro remains steady, and the Swiss franc benefits from safe haven flows. Gold has attracted safety bids, reaching its highest level since May last week. Meanwhile, oil prices have eased due to the absence of any disruptions to supplies from the Middle East.
Overall, Asian shares are facing downward pressure due to Middle East tensions and rising bond yields. The outcome of central bank meetings and tech company earnings reports will heavily influence market sentiment. However, strong U.S. growth and productivity gains are expected to support corporate profits. Currency, gold, and oil markets are also experiencing fluctuations due to geopolitical concerns and global economic factors.
