US economic activity has slightly declined in recent weeks, influenced by tariffs and uncertainty, as reported by the Fed's Beige Book. This downturn is impacting the global market.
Asian shares opened cautiously, reflecting weak US economic data that reinforces expectations for Federal Reserve interest rate cuts this year. South Korean shares saw gains for a third day, while Japanese indexes dropped.
Markets are closely watching the auction of super-long-term bonds in Japan. The sale follows recent poor showings, with demand for long-term bonds decreasing globally.
The Institute for Supply Management's index of services fell below 50, indicating contraction. Private payrolls also saw the smallest increase in two years. Nonfarm payroll jobs data, expected Friday, will provide further insights.
Swap traders are anticipating two Fed rate reductions by year-end. The weaker yields on Wednesday put downward pressure on the dollar, with the dollar index falling 0.4%.
The European Central Bank will announce its interest rate decision later in the day. Attention in Asia will be on the bond sale in Japan, with Japanese government bonds supported as US Treasury yields continue to decline.
Kevin Zhao, head of global sovereign and currency at UBS Asset Management, suggested Japan should halt issuing long bonds to address the recent selloff. Japan's sovereign debt is under scrutiny as the government prepares for another super-long-term bond sale after recent disappointing auctions.