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Asian shares drop ahead of Fed rate decision

Asia shares

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.5% and was heading for a monthly loss of 5%, snapping a two-month winning streak

Asian shares dropped broadly on Wednesday, while the Australian dollar slipped after surprisingly soft domestic inflation data and short-dated Treasury yields stayed higher ahead of a rate decision from the Federal Reserve.

Chinese markets wavered after an official factory survey showed China’s manufacturing activity in January declined for a fourth consecutive month.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.5% and was heading for a monthly loss of 5%, snapping a two-month winning streak.

That was in part due to a steep selloff in Chinese markets amid angst over the lack of large stimulus moves by authorities to shore up the economy and fading investor confidence.

Concerns over the country’s struggling property sector also continued to weigh, as investors wait to see how the liquidation of property giant China Evergrande Group will play out.

China’s blue-chip index, which earlier this month slumped to its lowest since 2019, was down 0.7% on the day and down nearly 6% for January, marking its sixth successive monthly decline.

Hong Kong’s Hang Seng Index lost more than 1%, weighed down by property and tech names, and was on track for its worst January performance since 2016.

Beijing has stepped in to put a floor under its declining stock market, including a deep cut to banks’ reserve requirements.

There is a patently clear sign in my mind that they do not want the market to go down anymore, Mark Matthews, Bank Julius Baer’s head of research for Asia, said at an outlook briefing in Singapore on Tuesday.

Japan’s Nikkei, which has meanwhile been one of Asia’s standouts, looked set to end the month with a more than 7% gain, its best January performance in more than a decade.

The index was last down 0.5%, as expectations mount for an imminent Bank of Japan pivot on monetary policy.

The yen extended its gains after the release of the minutes and was last slightly higher at 147.62 per dollar.

Still, the currency was headed for a monthly loss of over 4%, on the back of a resurgence in the dollar and as stark interest rate differentials remain between Japan and the U.S.

The Aussie dollar was down 0.6% at $0.6564 after data on Wednesday showed Australian consumer price inflation slowed more than expected in Q4 to a two-year low, ramping up bets on imminent rate cuts.

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