Asian markets turn lower on fresh rate hike worries

Jun 8, 2023 - 13:30

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Asian markets turn lower on fresh rate hike worries

Fears that the Federal Reserve will raise interest rates next week pushed Asian markets into reverse Thursday, mirroring losses on Wall Street and in Europe, while traders waited for China to take action to bolster growth.

So far this month, equities have had a fairly good run-up as recent data showed the US economy was holding up despite 10 straight rate rises, but the Fed had enough flexibility to forego another move this month.

However, the Bank of Canada’s unexpected hike on Wednesday, a day after Australia raised rates to an 11-year high, dashed such hopes and reminded markets that more effort was still needed to combat still-too-high inflation.

The Fed’s 14 June decision comes just after the release of figures on the consumer price index, which could play a major part in policymakers’ thoughts, with the board still split on whether or not to pause.

“Canada’s central bank is viewed as one of the leaders when it comes to being proactive with monetary policy,” said OANDA’s Edward Moya.

“They were the first to raise rates in 2022 and then put them on hold earlier this year. The BOC is signalling that more rate hikes could come and that has everyone rethinking that the Fed will be done after the July hike.”

The news compounded the already gloomy mood on trading floors following weak trade data out of China and the United States as well as subdued German industrial production.

Wall Street’s tech firms, which are susceptible to higher borrowing costs — took the heaviest hit Wednesday, sending the Nasdaq down more than one per cent.

And the selling filtered through to Asia, where Hong Kong, Shanghai, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were all in the red.

“Given the rally that we’ve had, it would be normal to see a bit of a pause, particularly in the context that we see where rates might plateau quite soon, but stay higher for longer,” Virginie Maisonneuve, at Allianz Global Investors, told Bloomberg Television.

Tokyo swung between gains and losses after enjoying a healthy rally in recent months. The Nikkei 225 was supported, however, by data showing Japan’s economy expanded more than initially thought in the first three months of the year.

In contrast, the torpid performance of China’s economy has traders hoping Beijing will unveil fresh support measures as the initial boost from the removal of zero-Covid fades.

Observers said the People’s Bank of China could announce a rate cut as early as this month, having this week asked major lenders to lower their deposit rates.

That came after reports last week said officials were looking to ease some rules in the property sector, where a number of firms are straining under the weight of massive debts.

Key figures around 0230 GMT

Tokyo – Nikkei 225: DOWN 0.1 per cent at 31,871.23 (break)

Hong Kong – Hang Seng Index: DOWN 0.5 per cent at 19,158.43

Shanghai – Composite: DOWN 0.1 per cent at 3,194.52

Euro/dollar: UP at $1.0711 from $1.0696 on Wednesday

Pound/dollar: UP at $1.2451 from $1.2431

Dollar/yen: DOWN at 139.92 yen from 140.24 yen

Euro/pound: DOWN at 86.02 pence from 86.03 pence

West Texas Intermediate: DOWN 0.1 per cent at $72.45 per barrel

Brent North Sea crude: DOWN 0.1 per cent at $76.84 per barrel

New York – Dow: UP 0.3 per cent at 33,665.02 (close)

London – FTSE 100: DOWN 0.1 per cent at 7,624.34 (close)