Asian shares tumbled to their lowest point in nine months on Thursday, while the dollar surged to a two-month high. These shifts were fueled by concerns about China’s sluggish economic recovery and apprehensions that the Federal Reserve might still implement interest rate hikes, a scenario that unnerved investors.
MSCI’s broadest index of Asia-Pacific shares outside Japan reached its nadir at 495.03, a level last seen on November 29. The index was currently down by 1.14% at 497.11, experiencing an 8% decline for August. This performance set it on course for its most disappointing monthly showing since September.
Thursday’s declines encompassed a wide spectrum across the Asia Pacific, with Japan’s Nikkei and Australia’s S&P/ASX 200 index both down by 1%.
China’s prominent CSI 300 Index registered a 0.45% decrease, while Hong Kong’s Hang Seng Index saw a more pronounced drop of 1.7%, reaching a point close to its lowest in nine months.
China’s stock market has been grappling with challenges as a series of economic indicators have spotlighted the faltering recovery following the pandemic. Investors have yet to be convinced by the policy maneuvers undertaken by authorities.
“Investors looking for more aggressive support from policymakers amid soft activity have been disappointed as the recent incremental measures haven’t been sufficient to restore confidence,” explained Taylor Nugent, an economist at NAB.
Complicating matters for the world’s second-largest economy is the deepening crisis in the property sector. Defaults on investment products by a major Chinese trust company, coupled with a decline in home prices, have cast a shadow over the situation.
On the previous day, Wall Street concluded on a downward trajectory following the release of minutes from the Federal Reserve’s July meeting, which revealed a split among officials regarding the necessity for additional interest rate hikes.
“While ‘some participants’ cited the risks of pushing rates too far, ‘most’ policymakers continued to prioritize the battle against inflation,” the minutes highlighted.
The central bank of the United States had implemented a 25-basis-point rate hike during the July meeting after maintaining rates in June. Fed Chair Jerome Powell had previously stated that the economy required a slowdown and a weakening labor market for inflation to return to the central bank’s targeted 2% rate.
According to ING economists, remarks from officials, including those with more hawkish stances, suggest a willingness to temporarily halt proceedings in September, but to retain the option for another hike in either the November or December sessions.
“We believe that the Fed will indeed keep interest rates steady in September, but we are not convinced they will follow through with that final projected hike,” the economists noted, emphasizing that further rate increases might elevate recession risks.
Market indicators currently indicate an 86% likelihood of the Fed maintaining the status quo next month, as per the CME FedWatch tool. Meanwhile, there’s a 36% chance of a rate hike during the November meeting.
The benchmark 10-year yields have reached 4.288%, the highest since October 21, with the possibility of nearing a 16-year peak of 4.338%.
The ascending yields propelled the dollar’s strength, as evidenced by the dollar index, a measure of the US currency’s performance against six other major currencies. It reached a two-month peak of 103.58 as investors gravitated towards safety.
The Japanese yen faced a 0.07% decline, trading at 146.42 per US dollar. This marked a fresh nine-month low, as traders remained attentive to potential discussions of intervention by Japanese officials. Finance Minister Shunichi Suzuki had previously indicated that authorities were not targeting specific currency levels for intervention.
Fears concerning China’s situation and the trajectory of US interest rates also reverberated through the commodities market, with oil prices dipping for the fourth consecutive session. US crude declined by 0.34% to $79.11 per barrel, while Brent stood at $83.23, reflecting a 0.26% drop for the day.