SINGAPORE Reuters -- Asia's stock markets went down on Wednesday as investors curbed their enthusiasm about China's reopening, as reality bited on hopes for a soft economic landing in the United States.
The S&P 500 had dropped for a fourth straight session and the brakes have come on a rally that has lasted almost two months. Oil fell sharply and is back where it began the year, with futures at $79.50 a barrel.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4% and Japan's Nikkei fell 0.5%.
The optimism that had driven the rally is being put to the test, said Shane Oliver, head of investment strategy at Australia's AMP.
We might be transitioning from a situation of worrying about inflation and interest rates to one where the negatives begin to weaken growth and fall profits. After European Union regulators ruled that the company will have to ask users before running advertising based on their personal data, Facebook parent Meta dragged down markets, with shares falling 6.8%.
In the United States, big banks are bracing for a worsening economy next year, as inflation and rate rises threaten consumer demand, with top executives at Goldman Sachs, J.P. Morgan and Bank of America all sounding downbeat in remarks on Tuesday.
Economic growth is slowing down, said David Solomon, CEO of Goldman Sachs. When I talk to my clients, they sound extremely cautious. The positive news helped the safe-haven U.S. dollar to pause its recent retreat because of the longer-dated bonds.
The yield on the benchmark 10 year U.S. Treasuries fell 8.6 basis points to 3.513% overnight and was last at 3.5442%. That is more than 80 bps less than the two-year yield because investors reckon that high rates hurt growth.
Traders in Asia are weighing the possibility of loosening in China's COVID 19 controls and what that means for the world's second-biggest economy and regional demand.
On Tuesday, Beijing allowed residents into parks, supermarkets, offices, and airports without any tests.
If replicated across the country, this alone will make a difference to consumption figures, said BNY Mellon strategist Geoff Yu.
There are very few precedents for what the country is looking to achieve. The world will need to be braced for the inflation implications that have accompany every major re- opening. Oil prices have fallen with declining demand expectations and are now 40% less than a high of nearly $140 a barrel made shortly after Russia's invasion of Ukraine.
After excitement about a slowdown in U.S. rate hikes, the dollar was going to stay afloat from the year's highs in foreign exchange markets.
It was trading at $1.0467 per euro and was firm at 137.02 yen in Asia on Wednesday. The Australian dollar was broadly unchanged at $0.6707 despite Australian third quarter growth coming in a bit less than forecasts.
The Canadian dollar was trading at 1.3644 per dollar ahead of a rate hike from the Bank of Canada later on Wednesday. The U.S. dollar index was at 105.5.
Spot gold was steady at $1,773 an ounce andbitcoin sentiment was nowhere as the fallout from the collapse of FTX rippled through the sector was felt by the collapse of the sector.