Shares in Asia were mostly lower on Monday, with Tokyo being the only major regional market to advance. This comes after Wall Street experienced more losses, marking its worst week in six months. U.S. futures and oil prices, however, did edge higher.
Investor sentiment has been weighed down by several concerns, including worries over China’s property sector, the U.S. government shutdown, and the continued strike by American autoworkers. China Evergrande, a troubled property developer, saw its shares sink 18.2% after announcing its inability to raise further debt. This predicament puts its plans for restructuring its more than $300 billion in debt at risk.
In terms of regional markets, Hong Kong’s Hang Seng lost 1.3% and the Shanghai Composite index declined 0.3%. Japan’s Nikkei 225, on the other hand, was up 0.6%. In Seoul, the Kospi lost 0.6%, while Australia’s S&P/ASX 200 shed 0.3%.
On Friday, Wall Street saw a slip in the S&P 500 by 0.2% and a decline of 0.3% in the Dow Jones Industrial Average. The Nasdaq composite dipped 0.1%. This retreat has deepened as Wall Street comes to terms with the fact that interest rates are unlikely to come down significantly in the near future.
The increase in bond yields to their highest levels in over a decade has put pressure on Wall Street. Yields have been rising for months and accelerated further after the Federal Reserve indicated that it may not cut its main interest rate as much in 2024 as investors had hoped. The high federal funds rate, which is at its highest level since 2001, has an impact on investment prices and dampens inflation.
The rise in rates intentionally slows down the economy and affects investment prices. While their impact may not be immediate, they can have far-reaching consequences in various sectors. For example, earlier this year, high rates contributed to the collapse of three U.S. banks.
Adding to the unease in the market is the looming possibility of a U.S. government shutdown at the end of the month. This would disrupt many services, squeeze workers, and have political repercussions. Republicans in the House are pushing for deep cuts in federal spending, which is fueling a confrontation with Democrats.
Moreover, American auto workers have expanded their strike against major carmakers, walking out of 38 General Motors and Stellantis parts-distribution centers in 20 states. The demand for improved pay and benefits, coupled with potential shortages, could put upward pressure on inflation.
While there was some stabilization in the S&P 500 after yields eased slightly, the 10-year Treasury yield remains near its highest level since 2007. When bonds offer higher interest rates, investors are less inclined to pay high prices for stocks, especially those that are considered expensive or require significant future growth.
Technology stocks, in particular, have been hit hard by the recent market conditions. However, there was some positive news for tech-oriented companies, as U.K. regulators gave preliminary approval to Microsoft’s restructured $69 billion deal to acquire video game maker Activision Blizzard. If finalized, it would be one of the largest tech deals in history.
In terms of oil prices, U.S. benchmark crude climbed 11 cents to $90.14 per barrel, while Brent crude was up 12 cents at $92.08 per barrel. The U.S. dollar rose slightly against the Japanese yen but slipped against the euro.
Overall, investor sentiment in Asia remains cautious due to various headwinds, including concerns over China’s property sector, the U.S. government shutdown, and labor strikes. The impact of rising bond yields and the uncertain interest rate outlook also contribute to the cautious market sentiment.