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Regional markets took a weak lead-in from Wall Street, with U.S. stock benchmarks falling for a second straight session on Wednesday as sentiment towards equities remained on edge. U.S. stocks also saw a heavy dose of profit-taking after a stellar melt-up through December.
In Asia, Japan’s Nikkei 225 index was the worst performer, losing 1.2% in catch-up trade after an extended new year’s holiday. Sentiment towards Japan was also rattled by a devastating earthquake earlier this week, which killed scores of people and caused widespread disruption in central Japan.
Purchasing managers index (PMI) data showed that Japanese manufacturing activity remained in contraction in December.
Losses in heavyweight technology stocks also weighed on the Nikkei, mirroring a trend seen across most stock markets.
Technology-heavy indexes continued to bear heavy losses as markets second-guessed just when the Fed could begin trimming interest rates this year. South Korea’s KOSPI fell 0.9%, while Hong Kong’s Hang Seng index shed 0.4%.
The minutes of the Fed’s December meeting showed central bank officials acknowledging progress against inflation over the past year. But the minutes also offered few cues on when the bank could potentially begin trimming interest rates as signaled during the meeting.
The minutes showed policymakers concerned over a soft landing for the U.S. economy, and whether monetary policy was too restrictive.
While the Fed is still expected to trim rates by at least 75 basis points in 2024, markets remained uncertain over the timing of the potential cuts. This spurred a heavy dose of profit-taking in tech stocks, which had risen sharply through December on the prospect of rate cuts this year.
Markets were also cautious before nonfarm payrolls data due this Friday, which is expected to factor into monetary policy.
Broader Asian stocks extended recent losses, with Australia’s ASX 200 falling 0.3% and coming further off a recent 2-1/2-year high. PMI data showed Australia’s services sector remained in contraction through December.
Futures for India’s Nifty 50 index pointed to a weak open, with the index due for more profit-taking after hitting a series of record highs in December. PMI data on Wednesday showed Indian manufacturing activity grew less than expected in December.
Chinese stocks continued to lag their peers as a positive private survey on the services sector did little to inspire confidence in the country. The bluechip Shanghai Shenzhen CSI 300 index fell 1.1% and remained close to a five-year low, while the Shanghai Composite index lost 0.7%.
The Caixin Services PMI showed that China’s service sector grew more than expected in December.
But the reading still showed that an economic recovery in China remained under pressure, especially as manufacturing activity- which makes up a bigger portion of the economy- remained laggard through December.
Official PMI data released earlier this week also painted a much weaker picture of the economy than the Caixin readings.
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