By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

The perfect storm of higher bond yields, corporate jitters and rising price pressures that hit Wall Street on Tuesday looks set to darken the Asian market landscape on Wednesday, as investors wonder whether this might be the start of a deeper correction.

Asia’s economic calendar has some top-tier releases in the shape of Chinese and Japanese service sector purchasing managers index data, but the market tone on Wednesday will probably be set by the latest tightening of global financial conditions. 

The 10-year U.S. Treasury yield hit 4.40% and Brent crude touched $89 a barrel on Tuesday – both the highest levels this year – and Tesla shares slumped 5% after the company announced the first fall in quarterly deliveries for nearly four years. 

The three main U.S. indexes shed 0.7% to 1.0%, and the S&P 500 clocked its biggest fall in a month. This doesn’t bode well for Asia on Wednesday, but there is a ‘glass half full’ argument to be made.

In some ways, Wall Street held up pretty well in light of the break out in yields, back up in implied rates and renewed talk of ‘bond vigilantes’ coming back to stalk the bond market. A decline of 1% or less, on the heels of a relentless rally culminating in last week’s record highs, is small beer.

Still, there are plenty reasons to be cautious.

The threat of currency market intervention from Japanese authorities to support the beleaguered yen refuses to lift, as the yen continues to hover close to the 152.00 per dollar level.

Recent moves in China’s currency are also worth noting. The offshore yuan is creeping above the upper limit of the 2% band around the central bank’s daily fixing rate. This comes ahead of U.S. Treasury Secretary Janet Yellen’s return to China later this week for renewed dialogue with top officials in Beijing.

China’s ‘unofficial’ Caixin services PMI data on Wednesday rounds off a surprisingly strong set of PMI reports that has fueled hopes that the world’s second largest economy is finally picking up momentum. 

Ironically, however, this renewed optimism, together with punchy U.S. manufacturing PMIs, has helped put upward pressure on global bond yields, which in turn has put downward pressure on stocks. 

World markets may be back in a ‘good news is bad news’ mindset.

Alibaba shareholders may be asking themselves a similar question after the Chinese e-commerce giant said on Tuesday it conducted a $4.8 billion share buyback in the three months to March, its second biggest quarterly buyback ever.

Hong Kong-listed shares rose 1%, but U.S.-listed shares fell 0.7%.

Here are key developments that could provide more direction to markets on Wednesday:

– China Caixin services PMI (March)

– Japan services PMI (March)

– Hong Kong retail sales (February)

(By Jamie McGeever; Editing by Josie Kao)

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