Asian shares faced declines on Wednesday, contributing to market concerns as optimism regarding early and aggressive US interest rate cuts diminished. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1%, following a 1.0% drop the previous day, marking a sluggish start to the new year. Japan’s markets remained closed for a holiday.

South Korean shares slid by 1.8%, and Australia’s resource-heavy stocks declined by 1.1%. Hong Kong’s Hang Seng index also fell by 1%, driven by a 1.5% plunge in technology shares.

Padhraic Garvey, regional head of research, Americas, at ING, commented on the situation, stating, “Risk assets struggled a tad yesterday, and that makes a degree of sense given the complicated back story, and the remarkable rally seen into year-end. While a one-day move cannot be simply extrapolated, there are reasons to be a tad concerned on the risk front at this early phase of 2024. Geopolitical concerns have not abated, and in fact, if anything, are elevating.”

Geopolitical tensions were further exacerbated as Israel reportedly killed Hamas deputy leader Saleh al-Arouri in Lebanon’s capital Beirut, raising concerns about the potential escalation of conflict beyond the Palestinian enclave.

Denmark’s Maersk and German rival Hapag-Lloyd announced that their container ships would continue to avoid the Red Sea route due to the heightened tensions.

On Wall Street, the initial euphoria about prospects for interest rate cuts cooled, leading to a retreat from record highs. The Nasdaq slid 1.6%, and the S&P 500 lost 0.6%. Contributing to the pressure on stocks was a climb in Treasury yields in the new year, with the 10-year US Treasury yield briefly surpassing 4%, a two-week high.

In the foreign exchange market, currencies mostly traded sideways in early Asian hours. The US dollar, which had climbed 0.8% against its peers overnight to a two-week high, hovered at 102.15. The euro fell 0.9% overnight, while the Japanese yen nursed losses after a 0.8% decline.

Bitcoin rose 0.5% to $45,205, remaining close to a 21-month high of $45,922 reached on Tuesday.

Oil prices saw marginal gains after closing lower on Tuesday. US crude futures drifted 0.1% higher to $70.43 a barrel, and Brent remained flat at $75.86 a barrel.

Market focus is now on the Federal Reserve minutes for the December policy meeting, scheduled for later in the day. Additionally, a slew of data this week, including the ISM survey on US manufacturing, job openings data, a private payrolls report, and jobless claims results on Thursday, will be closely monitored. The highly anticipated US nonfarm payrolls report is due on Friday.

Spot gold edged 0.1% higher, reaching $2,060.18 per ounce. The global financial landscape remains uncertain as investors closely track geopolitical developments and await crucial economic data to gauge the direction of monetary policies in 2024.