SYDNEY, Aug 1 2019 : Asian shares fell to six-week lows today while the dollar jumped to two-year highs as the U.S. Federal Reserve poured cold water on market expectations of a lengthy easing cycle following a 25 basis-point rate cut.
MSCI’s broadest index of Asia-Pacific shares outside Japan faltered 0.4%, extending losses for a fifth day to the lowest since mid-June.
E-minis for the S&P500 clawed back early losses and were marginally higher, after a sharp drop on Wall Street.
Global share markets recoiled overnight after U.S. Federal Reserve Chair Jerome Powell said yesterday’s easing was “not the beginning of a long series of rate cuts”.
Powell characterised the rate cut as “a mid-cycle adjustment to policy”, citing signs of a global slowdown, simmering U.S. trade tensions and a desire to boost too-low inflation. Markets took that as a sign that sharp further cuts were not imminent.
Riskier assets such as shares have had a golden run in the past decade as global central banks have kept monetary policies stimulatory, world growth has been strong and corporate profits have surged. But there are now growing worries over how much longer the rally can run as trade disputes drag on the global economy.
“The broader global trade dynamic remains a challenge,” Morgan Stanley strategist Michael Zezas said, referring to trade skirmishes between Japan and South Korea and U.S.-Europe negotiations over auto tariffs.
“Trade should continue to drag on corporate confidence, capex and global growth in the near term.”
Downbeat data and factory surveys today pointed to further weakness for Asia’s trade-reliant economies.
South Korea’s exports tumbled for an eighth straight month in July amid persistently weak global demand and an escalating dispute with Japan, while its new export orders shrank the most in about six years.
South Korea, the world’s sixth-largest exporter, is the first major industrial economy to release trade data each month, providing an early assessment on the health of global demand.
Pressure on Chinese factories eased slightly, but manufacturing activity continued to shrink.
Yields on U.S. Treasuries rose as investors scaled back expectations for at least 100 basis points of easing in the near-term.
Yields on 10-year bonds climbed as high as 2.053% in early Asian hours from a U.S. close of 2.007%.
In foreign exchange, the dollar enjoyed a broad-based rally against major currencies, including the euro and Antipodean currencies on expectations monetary policies in Europe, Australia and New Zealand will remain accommodative.
The dollar index against a basket of six major currencies finished July 2.5% higher and was last up 0.3% at 98.816. Against the Japanese yen JPY=, the dollar broke above 109 to jump to the highest since end-May.
The common currency EUR= fell to $1.1032, the lowest since May 2017.
The Aussie AUD=D3 slipped below key chart support of $0.6832 to as low as $0.6828, a level not seen since early January when a currency “flash crash” briefly took it to $0.6715.
U.S. crude futures fell 82 cents to $57.75 per barrel in the wake of Powell’s comments on the rate outlook. Brent was down 97 cents at $64.08.
Spot gold made a new two-week trough today after falling to 1,405.50. – Bernama