Asian shares slipped on Monday with investors nervously waiting on a series of central bank meetings this week which are certain to see interest rates hiked up again.
On what was a sluggish start to the week across the region, with markets in Japan closed for a holiday, traders adopted a holding pattern as the dollar firmed ahead of a predicted sharp rate increase from the US Fed.
MSCI’s broadest index of Asia-Pacific shares outside Japan, fell 0.6%, continuing to set new two-year lows, also hurt by declining tech stocks.
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Chinese shares tumbled for a fourth straight session despite the central bank injecting liquidity and cutting its 14-day reverse repo rate, after US President Joe Biden’s latest comments on Taiwan spooked investors when he said that US forces would defend the island in the event of a Chinese invasion.
The Shanghai Composite Index dipped 0.35%, or 10.80 points, to 3,115.60, while the Shenzhen Composite Index on China’s second exchange dropped 0.76%, or 15.24 points, to 1,990.36.
Hong Kong stocks declined, with the tech sector falling the most, following a big sell-off in US markets on Friday as investors weighed up the risk of another big interest rate increase from the Federal Reserve.
The Hang Seng tech index dipped by more than 2% with the Alibaba Group tumbling 3.4% and Meituan declining 1.1%. The Hang Seng Index dropped 1.04%, or 195.72 points, to 18,565.97.
Elsewhere across the region, markets were subdued as investors braced for a busy week with 13 central bank meetings that are certain to see borrowing costs rise across the globe.
Equities in Manila fell as much as 1.8% in their fifth straight session of losses. The index hit its lowest level since August 10. Shares in Seoul and Kuala Lampur both hit a two-month low.
Indian stocks were an outlier with Mumbai’s signature Nifty 50 index up 0.62%, or 108.00 points, at 17,638.85.
Thin Trade on Queen’s Funeral
Globally, shares slipped with markets already fully pricing in interest rates of 75 basis points from the Federal Reserve, with futures showing a 20% chance of a full percentage point.
“Asset performance during this Fed tightening cycle is very different from the norm for other rate hike episodes,” David Chao, a global market strategist at Invesco, said.
“Usually, the Fed tightens when the economy is thriving and most assets do well. However, most assets have suffered this time, perhaps due to the surge in inflation and abrupt policy change.”
Trading was thinned with British markets closed for Queen Elizabeth II’s state funeral, but Europe’s STOXX index slid 0.5% to its lowest level in two months, dragged down by tech stocks.
As well as the specific rate hike, investors will be watching Fed members’ “dot plot” forecasts for rates, which are likely to be hawkish, putting the funds rate at 4-4.25% by the end of this year, and even higher next year.
That risk saw two-year Treasury yields surge 30 basis points last week alone to reach the highest since 2007 at 3.92%, so making stocks look more expensive in comparison and dragging the S&P 500 down almost 5% for the week.
Bank of Japan Defies Trend
It is not just in the US that interest rate rises are expected. Most of the banks meeting this week – from Switzerland to South Africa – are expected to hike, with markets split on whether the Bank of England will go by 50 or 75 basis points.
China’s central bank went its own way, though, and cut a repo rate by 10 basis points to support its ailing economy.
The other exception is the Bank of Japan, which has shown no sign of abandoning its uber-easy yield curve policy despite the drastic slide in the yen.
The dollar rose 0.34 to 143.45 yen on Monday, having backed away from the recent 24-year peak of 144.99 in the face of increasingly strident intervention warnings from Japanese policymakers.
The dollar index, which measures the currency against six counterparts, was 0.4% stronger at 110.03.
Oil prices slid, pressured by the stronger dollar Brent crude fell 1.3% to $90.18. US crude dropped 1.3% to $83.97.
Key figures
Tokyo – Nikkei 225 <> CLOSED
Hong Kong – Hang Seng Index < DOWN 1% at 18,565.97 (close)
Shanghai – Composite < DOWN 0.35% at 3,115.60 (close)
London – FTSE 100 <> CLOSED
New York – Dow < DOWN 0.45% at 30,822.42 (Friday close)
- Reuters with additional editing by Sean O’Meara
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