Asian shares extend global sell-off, dollar holds gains

SYDNEY: Asian shares extended a global sell-off on Wednesday while the dollar held gains as market optimism about early and aggressive U.S. interest rate cuts ebbed ahead of the release of Fed minutes and jobs data.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.1% after a 1.0% drop the previous day in a sluggish start of the new year. Japan markets remain shut for a holiday.

South Korean shares (.KS11) slid 1.8%, Australia's resources heavy stocks (.AXJO) declined 1.1%, while Hong Kong's Hang Seng index (.HSI) fell 1%, driven by a 1.5% plunge in technology shares (.HSTECH).

"Risk assets struggled a tad yesterday, and that makes a degree of sense given the complicated back story, and the remarkable rally seen into year end," said Padhraic Garvey, regional head of research, Americas, at ING.

"While a one-day move cannot be simply extrapolated, there are reasons to be a tad concerned on the risk front at this early phase of 2024. Geo-political concerns have not abated, and in fact if anything are elevating."

Indeed, tensions in the Middle East are ratcheting up. Israel on Tuesday killed Hamas deputy leader Saleh al-Arouri in Lebanon's capital Beirut, raising the potential risk of war in Gaza spreading well beyond the Palestinian enclave.

Denmark's Maersk (MAERSKb.CO) and German rival Hapag-Lloyd (HLAG.DE) said on Tuesday their container ships would continue to avoid the Red Sea route.

Overnight, Wall Street's euphoria about rate cuts prospects cooled a little as stocks retreated from record highs. The Nasdaq (.IXIC) slid 1.6% and the S&P 500 (.SPX) lost 0.6%.

Apple (AAPL.O) fell nearly 3% to a seven-week low after Barclays downgraded its shares on demand concerns. Tesla (TSLA.O) shares ended flat after delivering a record number of electric vehicles in the fourth quarter, but the company lost its spot as the top EV maker to China's BYD (002594.SZ).

Stocks were also pressured by a climb in Treasury yields in the new year. The 10-year U.S. Treasury yield briefly popped above 4% overnight, the first time in two weeks, but closed at 3.9406%, up 8 basis points for the day.

Cash Treasuries were not traded in Asia due to the holiday in Japan. 10-year Treasury futures were mostly flat on Wednesday.

In the foreign exchange market, currencies mostly traded sideways in early Asia hours. The U.S. dollar , which climbed 0.8% against its peers overnight to a two-week high, hovered at 102.15.

The euro was last at $1.0940, having fallen 0.9% overnight, while the Japanese yen nursed losses at 142.12 per dollar after a 0.8% decline.

Bitcoin rose 0.5% to $45,205, not far from a 21-month top of $45,922 hit on Tuesday.

Oil prices were marginally higher after closing lower on Tuesday. U.S. crude futures drifted 0.1% higher to $70.43 a barrel, after dropping more than 1% on Tuesday, while Brent LCOc1 was flat at $75.86 a barrel.

Market focus is now on the Fed minutes for the December policy meeting due later in the day and a slew of data this week which could help justify its optimism of the aggressive policy easing that has been priced in. Futures have wagered on six rate cuts in 2024.

The ISM survey on U.S. manufacturing is also due later on Wednesday, as well as job openings data, before a private payrolls report and jobless claims results on Thursday. The closely watched U.S. nonfarm payrolls report is due on Friday.

Spot gold was 0.1% higher at $2,060.18 an ounce.