Wall Street headed lower before markets opened on Tuesday after a long weekend, while Hong Kong's benchmark fell more than 2% as worries over the outlook for China cast a shadow over regional markets.
U.S. markets were closed on Monday, leaving investors unable to take any cues from overnight trading. Before the bell, S&P 500 futures were down 0.3% and Dow Jones Industrial Average futures were down 0.2%.
Stocks have been climbing towards records in recent months, with the S&P 500 index within 0.3% of its all-time high on hopes that inflation has cooled enough for the Federal Reserve to cut interest rates several times this year. is approaching.
Easing interest rates and yields eases pressure on the economy and financial system, while at the same time boosting investment prices.
But after a strong start to the year, investors are becoming a bit more cautious about how quickly and at what pace the Fed will start cutting rates.
“I feel that in the first quarter of this year there will be a growing recognition that it is too early for central banks to cut interest rates unless there is a new banking crisis, real estate crisis, debt crisis, etc.” – Huang ”Swissquote Bank's Ipek Ozkardeskaya said in a commentary.
Traders are betting that the Fed will cut its key interest rates more than six times by 2024, a far more aggressive policy than the Fed itself has signaled. It has even warned that it could raise interest rates if inflation does not trend convincingly toward its 2% target. The federal funds rate is already at its highest level since 2001.
Microsoft rose about 0.7% to $391.25 a share before the bell on Tuesday, leapfrogging Apple to become the world's most valuable publicly traded company with a market capitalization of $2.89 trillion.
In European markets, Germany's DAX and France's CAC40 were each down 0.3% as of midday. Britain's FTSE 100 fell 0.2%.
In Asian trading, Tokyo's Nikkei Stock Average ended its New Year's winning streak and hit a 34-year high. It fell 0.8% to 35,619.18.
The dollar fell against the yen after a former central bank official said the Bank of Japan was preparing to end its years-long negative interest rate policy. The dollar was at 146.69 yen, down slightly from 145.75 yen late Monday.
Questions of when and how the Bank of Japan will break free from more than a decade of extreme monetary easing, which has kept the benchmark interest rate at -0.1%, have been plaguing markets for months. Speculation about a change in strategy has increased, especially after the Federal Reserve and other central banks raised interest rates sharply to rein in inflation that has skyrocketed as the economy recovers from the shock of the pandemic.
Hong Kong's Hang Seng fell 1.9% to 15,905.80. The Shanghai Composite Index recovered from an early decline and rose 0.3% to 2,893.99.
Investors were selling shares in technology and real estate companies. Online food delivery company Meituan fell 2.3% and video game company Tencent fell 2.4%. Financially troubled real estate developer China Garden Holding fell 5.6%, while Sino Ocean Group Holding fell 9.5%.
China is scheduled to release an economic update on Wednesday, with economists forecasting annual growth of 5.3% in the previous quarter, up from 4.9% in the July-September period.
Most forecasts expect growth in the world's second-largest economy to slow this year as the Chinese government continues to grapple with a crisis in its real estate sector and weak consumer demand. IMF chief Kristalina Georgieva warned in an interview with CNBC on Monday that China could face a “significant decline in growth below 4%” unless it implements reforms to boost spending. .
Elsewhere in Asia, South Korea's Kospi fell 0.8% to 2,497.59 and Australia's S&P/ASX200 index fell 1.1% to 7,414.80. Bangkok's SET fell 0.3%.
In other trading, benchmark U.S. crude oil rose 34 cents to $73.02 a barrel in electronic trading on the New York Mercantile Exchange. It rose 66 cents to $72.68 on Monday.
Brent crude oil, the international standard, rose 68 cents to $78.83 per barrel.
The euro fell from $1.0952 to $1.0885.
