Australia

Australian shares are set to open lower as US stocks resume a downward trend amid worries surrounding the Fed’s rate plans. Rising treasury yields, a strengthening US dollar and consumer spending continue to drive investor concerns.

ASX futures were down 24 points or 0.33% at 7046 as of 7:30am on Wednesday, pointing to a fall at the open.

US stocks fell sharply Tuesday, dragged down once again by investor concerns about rising bond yields and a strengthening US dollar.

The S&P 500 dropped 1.5%, extending its poor run since last week's Federal Reserve meeting, when officials raised their interest-rate forecasts for 2024. The tech-heavy Nasdaq Composite shed 1.6%, while the Dow Jones Industrial Average slid 388 points, or 1.1%.

Online retail giant Amazon counted among the worst performers, falling 4%, after the Federal Trade Commission filed a lawsuit alleging that the company wields illegal monopoly power.

The lawsuit, though, was widely anticipated, and the declines on Tuesday were broad-based, reflecting larger anxieties about the outlook for interest rates and the economy, analysts said.

In commodity markets, Brent crude oil gained 0.86% to $US94.09 a barrel, Gold was unchanged at US$1,900.70 and Iron ore fell by 1% to $US114.95 a tonne.

In local bond markets, the yield on Australian 2 Year government bonds remained relatively flat at 4.07% while the 10 Year gained slightly to 4.40%. Overseas, the yield on 2 Year US Treasury notes was unchanged at 5.12% and similarly, the yield on the 10 Year US Treasury notes remained flat at 4.54%.

The Australian dollar slid to 63.93 US cents from its previous close of 64.23 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies was flat at 100.22.

Asia

Chinese shares closed lower as a property-driven downturn weighed on the market despite stimulus policies. Fiscal and monetary support measures continue to be implemented, but likely need time to have a larger impact, HSBC Global Research analysts wrote in a research note. HSBC cut its 2023 GDP growth forecast for China to 4.9% from 5.3%. Telecommunications and carmaker stocks led the losses. China Telecom fell 2.5% while BYD and Great Wall Motor dropped 3% and 0.8% respectively. The software-services sector led the gains. Beijing Kingsoft Office rose 2.9% and iFlytek added 4.5%. The benchmark Shanghai Composite Index closed 0.4% lower at 3102.27, the Shenzhen Composite Index fell 0.5%, while the tech-heavy ChiNext Price Index declined 0.8%.

Hong Kong shares closed lower amid continuing concerns about the Chinese property sector after China Evergrande scrapped a debt-restructuring plan and said it is unable to issue new debt, Maybank's head of retail research, Sonija Li, said in a research note. The rising US dollar and higher US Treasury yields also affected investment sentiment. Manufacturing stocks led losses, with Xinyi Glass dropping 6.2% and Sunny Optical Technology declining 5.6%. Sports products companies also dragged down the index, with Li Ning losing 5.2% and Anta Sports Products falling 4.2%. Tech stocks were among the few gainers. Baidu rose 0.9% and Trip.com advanced 0.2%. The benchmark Hang Seng Index closed 1.5% lower at 17466.90, while the Hang Seng Tech Index fell 1.7%.

Japanese stocks ended lower, dragged by declines in pharmaceutical and electronics stocks, as concerns persisted about policy tightening abroad and higher borrowing costs. Eisai dropped 5.2% and Daiichi Sankyo shed 4.3%, while Tokyo Electron lost 3.7% and Renesas Electronics declined 2.7%. The Nikkei Stock Average fell 1.1% to 32315.05. The 10-year Japanese government bond yield rose 1.5 basis points to 0.740. Investors are focusing on US economic data and their impact on Treasury yields.

Indian shares ended lower in lackluster trade, tracking negative global cues, with technology and bank stocks dragging down the index, ICICI analysts said in an email. "The key risk for India in the short term will be macro conditions on the global front," the analysts said. Tech Mahindra led losses, dropping 1.3%, while Infosys was down 1%. Bank stocks dropped a lot, as Indusind Bank and ICICI Bank fell 1.3% and 0.8%, respectively. Meanwhile, Nestle India led gains with a 1.45% increase, while Tata Steel was up 1.2%. Mahindra & Mahindra advanced 0.7%. The benchmark Sensex was down 0.1% at 65945.47.

Europe

European stocks dropped, though London's blue-chip index held steady as financial stocks rose and as takeover talk lifted RS Group. The Stoxx Europe 600 retreated 0.6%, the French CAC 40 fell 0.7% and the German DAX backtracked 1%. RS Group topped the Footsie, up 5% after an M&A blog cited market rumors that the electronics distributor had attracted takeover interest. "RS Group is higher after being mentioned in a Betaville report regarding potential takeover speculation from a private-equity group," CMC Markets analyst Michael Hewson wrote. Meanwhile, Barclays climbed 3.9% after Morgan Stanley upgraded the bank, with other banking and financial stocks also having gained. Meanwhile, Brent crude rallied 0.5% to $92.29 a barrel, but the Dow dropped 1%.

The FTSE 100 closed Tuesday up 0.07%, outperforming European peers. “The index is holding up well, largely due to the continued weakness in the pound and a belief that a weaker currency and higher oil prices will help insulate it from the worst of any economic weakness”, said CMC Markets UK chief market analyst Michael Hewson. "This comes across as somewhat simplistic given the damage higher oil prices could do to the margins of its other big caps like Unilever and Diageo, and other consumer retail, nonetheless it ought to be positive for the likes of BP, Shell, and Glencore," Hewson said in a market comment.

North America

US stocks fell sharply Tuesday, dragged down once again by investor concerns about rising bond yields and a strengthening US dollar.

The S&P 500 dropped 1.5%, extending its poor run since last week's Federal Reserve meeting, when officials raised their interest-rate forecasts for 2024. The tech-heavy Nasdaq Composite shed 1.6%, while the Dow Jones Industrial Average slid 388 points, or 1.1%.

Online retail giant Amazon counted among the worst performers, falling 4%, after the Federal Trade Commission filed a lawsuit alleging that the company wields illegal monopoly power.

The lawsuit, though, was widely anticipated, and the declines on Tuesday were broad-based, reflecting larger anxieties about the outlook for interest rates and the economy, analysts said.

"Dollar up, rates up -- that's really all that matters right now," said Michael Antonelli, market strategist at Baird.

While major indexes remain higher for the year, they have taken a meaningful hit since the end of July, when the yield on the 10-year US Treasury note climbed back above 4%.

Yields, which rise when bond prices fall, have surged in large part because the economy has remained strong, causing investors to question how soon the Fed will be able to start cutting interest rates.

Still, higher yields translate into higher borrowing costs for businesses and consumers, making investors nervous about how long the economy can keep expanding. Higher yields have also boosted the dollar, thereby threatening companies that generate substantial revenue outside the country.

Few stocks were spared from Tuesday's downdraft.

Cintas, the Cincinnati-based provider of uniform-rental and other services, was the leading laggard in the S&P 500, falling 5.3% after it released revenue guidance that failed to meet analysts' expectations.

Energy was the best-performing sector in the broad market index, falling 0.5%. But that reflected another uptick in oil prices, which has also concerned investors.

Rising bond yields can hurt stocks in a variety of ways.

Some investors view technology stocks as particularly vulnerable because they tend to be valued for earnings expected to arrive further in the future, and those profits are worth less when investors can get an improved risk-free return by holding government bonds to maturity.

At the same time, higher bond yields and borrowing costs could cause a recession, which could do greater damage to many companies outside the tech sector.

Highlighting the unusual state of the economy, new data on Tuesday showed that home prices rose in July, putting home-buying affordability near its lowest level in decades. Though higher mortgage rates have depressed demand for homes, they also have reduced supply as current homeowners hold on to their homes because they don't want to give up their low mortgage rates.

At the center of the recent market turbulence, the 10-year Treasury yield finished the day at 4.558%, according to Tradeweb, up from 4.541% Monday and 4.366% before last week's Fed meeting.

The WSJ Dollar Index, which measures the US currency against 16 others, was up 0.2% in afternoon trading -- extending recent gains that have brought it to its highest level since last November.

Some investors said the threat of a government shutdown also might be starting to weigh on the market.

House Speaker Kevin McCarthy was still trying Tuesday to win the support of Republican holdouts so the House can pass a spending bill to fund the government past Oct. 1. Absent action from Congress by the end of the month, some federal workers would be sent home and none of the roughly 4.5 million people on the federal payroll would get paid.

Shutdowns typically only have a temporary impact on the economy because federal employees get back pay once they are over, said Matt Peron, director of research at Janus Henderson Investors.

Still, there is a chance that this shutdown could last longer than normal. "I don't think the market is quite pricing that yet, but that's certainly something I think is on people's mind," Peron said.