Asian markets hit, hopes lost for Fed rate cut
ASIAN markets retreated on Monday and the dollar held gains after a blockbuster US jobs repor t dashed hopes t hat t he Federa l Reser ve (Fed) would sla sh i nterest rates t his month.
Labor Department data showed that despite recent disappointing indicators, the world’s top economy continues to show resilience as it created far more posts than expected in June.
The news took traders by surprise and sent all three main indexes on Wall Street falling from record highs, while the dollar bounced against its main peers.
Investors had been hoping the Fed would cut borrowing costs by as much as 50 basis points at its next policy meeting at the end of the month, but Friday’s report reduced the chances of that happening.
And Asian investors extended the selling, with Shanghai losing more than two per cent, Hong Kong down 1.5 per cent and Tokyo off one per cent.
Sydney, Singapore and Mumbai sank more than one per cent. Manila, Wellington, Taipei, Bangkok and Jakarta were also lower. The Cambodia Stock Exchange index climbed 1.03 per cent.
Seoul sank 2.2 per cent, hit by a simmering trade row between South Korea and Japan. Tokyo l as t week imposed re s t r i ct i ons on exports used by South Korea’s tech companies in a dispute over court rulings linked to Japan’s wartime forced labour policy. Samsung fell 2.8 per cent and LG Display sank almost five per cent.
Lira tumbles
“Ma r k e t s r ema i n c onv inced t he Fed will cut rates at t he end of t he mont h,” sa id Oanda sen ior market analyst Edward Moya.
“But t he st rong labou r market has many questioning whether we will see just two rate cuts in 2019 and not what some ca ll the required three to see US stocks make a not her t h ree to f ive per c e nt pu s h h i g h e r i nt o uncharted territor y.”
He added that the focus will now turn to Fed boss Jerome Powell’s congressional testimony this week, with investors hoping he will provide some forward guidance on the bank’s plans.
“The testimony this week will be crucial around how they are seeing the evolution of the US economy,” Anne Anderson, at UBS Asset Management, told Bloomberg TV.
Also up this week is the release of minutes from the Fed’s June meeting, while US and Chinese officials are working to schedule toplevel trade talks.
On currency markets, the dollar maintained Friday’s gains against the yen, pound and euro.
And it surged more than three per cent on the Turkish lira after President Recep Tayyip Erdogan sacked the head of the country’s central bank following months of tensions over high borrowing costs.
Erdogan, who is battling to boost the struggling economy, has repeatedly railed against high interest rates and called for them to be lowered to stimulate growth.
The removal of Murat Cetinkaya at the weekend fuelled speculation the bank will slash borrowing costs.
Win Thin, global head of currency strategy at Brown Brothers Harriman & Co, wrote in a note: “Deputy governor Murat Uysal was named as the replacement, though we all know who really controls monetary policy now.”
European markets rebounded from opening losses. London rose 0.2 per cent, while Frankfurt and Paris were each 0.1 per cent higher.