Asian Shares Decline Amid U.S. Election Uncertainty; Tesla's Earnings Spark Some Optimism

By Stella Qiu

SYDNEY - Asian shares experienced a decline on Thursday as market participants grappled with uncertainty surrounding the U.S. election outcome. This has kept investors on edge while the dollar maintained its position near three-month highs and U.S. Treasury yields continued to rise. However, earnings from Tesla offered some relief, shining a light amid the pessimism.

The upward trend in U.S. Treasury yields, combined with anxiety over the elections and increasing expectations towards a cautious approach from the Federal Reserve regarding rate cuts, has weighed on risk sentiment in global markets. The potential return of Donald Trump to presidential office has further added to this uncertainty.

Shares of Tesla surged 12% in after-hours trading following their impressive third-quarter earnings report, which exceeded analysts' expectations. The company also forecasted a significant growth in sales for the upcoming year, projecting an increase of 20-30%.

In the U.S. marketplace, Nasdaq futures climbed by 0.5%, while key stocks were only modestly higher by 0.2%. Over the previous three trading days, U.S. stocks had dropped significantly, particularly affecting key tech players known as the Magnificent Seven, with Nvidia witnessing a near 3% decline.

Turning to Asia, Tokyo's stocks rebounded slightly, ending the day 0.2% up. In contrast, the MSCI index, which tracks shares across Asia-Pacific excluding Japan, slid by 0.3%, largely influenced by declines in Chinese stocks. Hong Kong's market fell by 1.3%, while China's blue-chip stocks dropped by 0.8%.

As noted by Kyle Rodda, a senior analyst at Capital.com, the fundamentals of the market are robust. However, current market dynamics are showcasing a rising event risk, prompting traders to take profits and play it safer by holding cash.

Concerns are growing as U.S. bond yields continue to escalate, with the benchmark 10-year Treasury yield rising 16 basis points this week, reaching 4.23%, which is close to its three-month peak of 4.26%. Although yields were steady during early trading hours in Asia, regional bonds faced a continuing sell-off, as evidenced by Australian futures dropping for a third consecutive day to 95.50, the lowest since May.

PIMCO economist Tiffany Wilding warned investors not to overreact to the recent uptick in bond yields. Historical data shows that shifts in 10-year yields a month post the Fed's initial rate cut have not consistently predicted further cuts.

Despite this, optimistic economic indicators have led some traders to speculate whether the Federal Reserve can significantly reduce rates at its remaining two meetings this year. Current market expectations reflect only a mere 40 basis points cut anticipated for this year.

The strengthening dollar has been a result of the higher yields, helping it stay firm near a three-month high. The dollar surged by 1.1% against the yen overnight and briefly crossed the crucial level of 153 before settling at 152.655. The yen faced weakness across various markets after Bank of Japan Governor Kazuo Ueda suggested that achieving the central bank's inflation target still requires time. Meanwhile, the euro and other currencies also hit three-month highs against the yen.

The dollar's rise has applied downward pressure on gold prices, which fell over 1% overnight from its peak of $2,758.37 an ounce. Despite this drop, gold made a slight recovery, climbing 0.2% on Thursday to $2,723.44.

In the oil sector, prices initially dipped due to a significant build-up in stocks but managed to regain some losses, with futures increasing by 1% to $75.72 per barrel.

Asia, Markets, Earnings