MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.9 per cent lower

Asian stocks dropped to three-week lows on Tuesday while bonds and the dollar stabilised as investors tempered expectations for cuts to U.S. interest rates and waited on U.S. jobs data.

The Australian dollar declined 0.5 per cent after the central bank left interest rates on hold, as expected, and stressed that the future direction rates would depend on data.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.9 per cent lower in early trading. Japan’s Nikkei was down 1 per cent to a three-week low, mostly thanks to declining chipmaking stocks.

Gold hovered above $2,000 after a surge on Monday, when it touched a record high in Asia before dropping down sharply.

Treasuries had come under a little pressure overnight as traders calibrated pretty aggressive pricing for U.S. interest rate cuts. Two-year yields increased 9.1 bps and were steady at 4.64 per cent in Asia trade.

Having been encouraged by a benign inflation report three weeks ago, futures imply around 125 basis points of cuts next year.

U.S. job openings data is due at 1530 GMT, and broader hiring figures, which had last month showed indications of a slowdown in the job market, will be published on Friday.

While it is understandable the market has embraced the recent improvement in inflation and softer October labour market data, strong momentum in the economy remains, ANZ analysts said in a note to clients. We therefore expect that the Fed, while encouraged by recent inflation improvements, will continue to adopt a hawkish policy stance.

In Asian stock markets, Hong Kong shares led declines with the Hang Seng sliding to a new one-year low. At 16,470, the index is trading below its pre-Asian financial crisis high and is around 17 per cent lower in a year when global stocks are 15 per cent higher.