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Global Markets React to Hawkish Central Bank Comments and Political Shifts, Sending Asian Shares to One-Month Low

Asian shares slumped to a one-month low, U.S. stock futures declined, and the dollar gained ground on Tuesday, driven by hawkish comments from central bankers that tempered expectations for interest rate cuts. Investors awaited insights from the influential Christopher Waller of the Federal Reserve.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped by 1%, marking its lowest level since mid-December. Japan’s Nikkei, coming off a six-session winning streak, saw a 0.7% dip from Monday’s 34-year high.

While U.S. markets were closed on Monday due to a holiday, S&P 500 futures were down by 0.4% in Asian trade. Fed fund futures also declined, indicating a slight cooling in expectations for interest rate cuts, and short-term Treasury yields saw an increase.

Early Tokyo trade saw two-year yields rise by 6.5 basis points, propelling the dollar to one-month highs against the risk-sensitive Australian and New Zealand dollars. European bonds experienced selling pressure as European Central Bank officials resisted market expectations for rate cuts.

Bundesbank President Joachim Nagel emphasized it was premature to discuss cuts, and Austrian central bank governor Robert Holzmann cautioned against expecting any cuts throughout the year. German bunds rose, supporting the euro, which reached a three-week high against the Swiss franc.

The stronger dollar pushed the euro about 0.3% lower to a one-week trough against the greenback at $1.0918 on Tuesday. The Australian and New Zealand dollars each declined by 0.6%, with the Aussie falling below its 50-day moving average to $0.6620, and the kiwi dropping to $0.6161.

In terms of policy and politics, attention shifted to Donald Trump, who secured victory in the first 2024 Republican presidential contest in Iowa, as projected by Edison Research. This outcome is expected to introduce volatility into the markets.

Investors closely monitored Federal Reserve Board Governor Waller’s speech on the economic outlook at 1600 GMT, recalling the market’s positive response to his shift in hawkish views in November, where he outlined a path to cuts.

Gold maintained stability at $2,052 per ounce, retaining gains from the previous week. In commodities, iron ore extended its decline to touch more than five-week lows in Singapore, impacting share prices for Australia-listed miners. Brent crude futures were down by 0.1% to $78.05 per barrel.

On the data front, Australian consumer sentiment worsened in January due to concerns over higher mortgage rates. Meanwhile, Japan’s wholesale inflation remained flat in December from a year earlier, easing pressure on the Bank of Japan to raise rates. Bitcoin held steady at $42,600.

Elon Musk Expresses Discomfort with AI/Robotics Growth at Tesla Without 25% Voting Control

Tesla’s CEO, Elon Musk, voiced his discomfort on Monday regarding the expansion of AI/robotics at Tesla (NASDAQ:TSLA) without securing a minimum 25% voting control of the company. Musk took to the social media platform X, formerly known as Twitter, stating that unless he obtains stock “enough to be influential, but not so much that I can’t be overturned,” he would prefer to develop products outside the realm of the electric vehicle manufacturer.

Despite Musk currently holding approximately 13% of Tesla stock, he emphasized the importance of having a significant voting influence. In another post, Musk indicated his openness to a dual-class voting structure to achieve the 25% voting control goal. However, he noted that this approach was deemed impossible after the initial public offering in Delaware.

Tesla has not provided an immediate response to requests for comments on Musk’s statements. Musk is currently facing a lawsuit related to his compensation package. Tesla shareholder Richard Tornetta filed a lawsuit against Musk and the board in 2018, aiming to demonstrate that Musk utilized his dominance over Tesla’s board to secure an outsized compensation package that did not necessitate full-time commitment to the electric car maker. Musk remains determined to attain a 25% voting share at Tesla.

SEC Delays Terraform Labs Trial for $40B Crypto Fraud Allegations Due to Extradition Proceedings

The U.S. Securities and Exchange Commission (SEC) has agreed to postpone the civil trial against Terraform Labs and co-founder Do Kwon, who are accused of orchestrating a $40 billion cryptocurrency fraud. The delay aims to facilitate Kwon’s extradition and his attendance at the trial.

In a filing on Monday in a Manhattan federal court, the SEC justified a “modest” adjournment of the Jan. 29 trial based on Kwon’s expressed desire to attend, his agreement to extradition from Montenegro, and the possibility of his presence in the United States by mid-March.

The SEC opposed separate trials for Terraform and Kwon, asserting that the cases were essentially identical, and holding two trials would unnecessarily require whistleblowers and ordinary retail investors to testify twice.

The decision on moving the trial date rests with U.S. District Judge Jed Rakoff. The SEC proposed April 15 as the new date to accommodate scheduling conflicts.

Kwon’s lawyer had initially sought a delay until at least March 18, and on Monday confirmed that further adjournments would not be pursued even if Kwon couldn’t attend on the new date.

The case revolves around the collapse of TerraUSD, a “stablecoin” designed to maintain a constant $1 price, and Luna, a more traditional token closely linked to TerraUSD. Both cryptocurrencies suffered losses of an estimated $40 billion or more when TerraUSD failed to maintain its $1 peg in May 2022.

The SEC alleges that Terraform and Kwon misled investors about the stability of TerraUSD and misrepresented how a popular Korean mobile payment app utilized the Terraform blockchain for transaction settlements.

In a ruling last month, Judge Rakoff determined that Terraform and Kwon violated U.S. law by not registering TerraUSD and Luna. Kwon also faces related U.S. criminal charges and an extradition request from South Korea, having been arrested in Montenegro last March.

The case is SEC v Terraform Labs Pte Ltd et al, U.S. District Court, Southern District of New York, No. 23-01346.

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