Asian Shares Decline Amid US Election Uncertainty; Tesla's Earnings Provide Some Boost

By Stella Qiu

Asian shares saw a downturn on Thursday, largely influenced by the growing uncertainty surrounding the U.S. election. This anxiety kept market participants on alert, while the U.S. dollar managed to stay close to its three-month highs and U.S. Treasury yields experienced an upward trend. Despite these concerns, the robust earnings report from Tesla provided a silver lining for many investors.

The rise in U.S. Treasury yields, combined with uncertainties related to the election and expectations that the Federal Reserve may adopt a more cautious approach in its monetary easing, led to a more risk-averse sentiment across the markets. The prospect of Donald Trump's potential return to the presidency has further fueled these market jitters.

Shares of Tesla surged by 12% in after-hours trading following a strong third-quarter profit report, which exceeded analysts' expectations. The electric vehicle manufacturer also surprised the market by predicting a sales growth of 20-30% in the coming year.

In the U.S., Nasdaq futures rose by 0.5% as major tech stocks had faced declines in the lead-up to their earnings announcements, with notable losses seen in companies like Nvidia, which dropped almost 3%.

Meanwhile, in Asia, the Tokyo stock market managed to recover from earlier losses, ending the day up by 0.2%. However, the MSCI index, which tracks shares in the Asia-Pacific region excluding Japan, fell by 0.3%, largely due to declining Chinese stocks.

Hong Kong’s market experienced a decline of 1.3%, and China’s blue-chip stocks fell by 0.8%. According to Kyle Rodda, a senior analyst at Capital.com, "Although the fundamentals appear solid and could support a continued bull market in the long run, short-term risks related to events like the election are beginning to be factored into prices, prompting traders to take profits and move to cash."

In a more troubling sign, U.S. bond yields have been rising, with the benchmark 10-year Treasury yields increasing by 16 basis points this week to reach 4.23%, approaching its three-month high of 4.260%. While U.S. yields were stable during early Asian trading, regional bonds continued to sell off, with Australian futures dropping for the third consecutive day to a low of 95.50, the weakest level since May.

Tiffany Wilding, an economist at PIMCO, urged caution among investors regarding the recent increase in bond yields. She noted that historical trends indicate the change in 10-year yields following the Federal Reserve's first rate cut has not been a reliable predictor of future cuts.

Despite the rising yields, strong economic data have led market participants to question the Fed's ability to make substantial cuts in rates during its remaining two meetings this year, with expectations for only 40 basis points of easing.

The dollar's strength has been bolstered by the higher yields, holding near its three-month highs. It appreciated by 1.1% against the yen overnight, breaching the significant 153 threshold. However, it ultimately settled at 152.655.

The yen has weakened across various pairs after comments from Bank of Japan Governor Kazuo Ueda indicated that achieving the central bank's inflation target would take more time. Both the euro and the pound also hit three-month highs against the yen during this period.

The rising dollar has had an impact on gold prices, which fell by more than 1% overnight from a record $2,758.37 per ounce. However, on Thursday, gold slightly recovered, climbing 0.2% to $2,723.44.

In the oil market, prices fell due to a significant increase in inventories but managed to recover some losses, with futures rising by 1% to $75.72 a barrel.

Asia, Stocks, Earnings