Asian Markets Tumble Amid Tightening Monetary Policies and Trade Wars
Thursday saw Asia-Pacific stock markets enter a downturn, marking an extension of the global equities decline. The downward spiral came in the wake of the U.S. Federal Reserve's reaffirmed hawkish stance. Moreover, the escalating China-U.S. trade war added to the pessimistic investor sentiment. The Nikkei share average in Japan took a significant hit, sliding 1.6%. Hong Kong's Hang Seng Index and mainland blue chips also faltered, tumbling more than 3% and 0.7% respectively. Simultaneously, Australia's stock benchmark and Taiwan shares declined by 1.2% and 1.6% respectively.
Treasury Yields on the Rise and US Dollar Strengthens
U.S. 10-year Treasury yields scaled a fresh four-month high in Tokyo trading, while the U.S. dollar bolstered its standing against major counterparts. An exception was the Japanese yen, which gained against the U.S. dollar due to traders' concerns about possible currency intervention. In the meantime, futures for U.S. E-mini stocks indicated a 0.4% drop for the S&P 500, following a 0.2% decrease overnight. Both U.K. FTSE and German DAX futures fell approximately 0.4%.
Federal Reserve Signals Future Rate Hikes
The Federal Reserve's most recent meeting minutes, released Wednesday, revealed that although interest rates remained steady last month, a majority of officials forecasted an eventual tightening of policy. Money market traders predict an 85% chance of a quarter-point rate increase on July 26 and an approximately 50% chance of a second increase by November.
US-China Relations Strain Further, Impacting Stocks
As the US Treasury Secretary Janet Yellen embarks on a trip to China, Beijing imposes restrictions on semiconductor-related metal exports, warning that this measure is just the beginning. Market analyst Matt Simpson from City Index notes that investor sentiment towards equities has waned as Sino-U.S. relations worsen and the Fed's hawkish stance persists.
Currency Flux: Yen Strengthens Against US Dollar
Despite the yen's traditionally close relationship with long-term U.S. yields, the U.S. dollar slipped against the yen by 0.54% to 143.875 yen, effectively erasing the previous day's 0.13% gain. The increasing U.S. yields and the Bank of Japan's unchanging dovish stance could soon propel the yen to the 145 level, which triggered intervention last fall, warns chief strategist at Nomura Securities in Tokyo, Naka Matsuzawa.
Sliding Oil Prices Amid China's Sluggish Demand Recovery
Lastly, oil prices declined in Asian trade as fears of a sluggish demand recovery from China, the world's top crude importer, overshadowed the prospect of tighter supply due to reduced output by leading exporters Saudi Arabia and Russia. Brent crude futures dropped by 25 cents, or 0.3%, to $76.40 a barrel, whereas U.S. West Texas Intermediate crude fell by 7 cents, or 0.1%, to $71.72 a barrel.
