Asia-Pacific shares were sharply lower on Monday after Federal Reserve Chairman Jerome Powell’s remarks at the Jackson Hole conference on Friday signaled that the era of high interest rates will have continuity in order to tame the galloping inflation.
On the board, the Japanese Nikkei closed with losses of 2.66%, at 27,878.96 units, with the South Korean KOSPI to lose 2.18%, while in Hong Kong o Hang Seng down by 0.79%. In mainland China, the Shanghai slightly strengthened by 0.06%, with Shenzhen to record losses of 0.40%. In Taiwan, the Taiwan Weighted “lost” 2.31%, while in Australia o S&P/ASX 200 closed down 1.95%
The plunge in Asia mirrored Wall Street’s run last week, with the Dow Jones industrial average losing 1,000 points on a weekly basis. And the slowdown in the US economy particularly affects Asian economies with an export nature.
“The market was obviously looking for a more neutral message from Powell’s speech. After all the talk of ‘pause’ and ‘turn’, which didn’t make sense with a Fed that has repeatedly said it will continue to raise interest rates even if that causes financial pain, we’re back to zero with the Fed continuing to tighten,” notes Clifford Bennett, chief economic analyst at ACY Securities.
The US central banker specifically said on Friday that the Fed would continue on the path of raising interest rates, which would slow the economy for some time, in order to tackle high inflation sweeping the world’s largest economy. Rising interest rates naturally hurt asset prices in addition to inflation, Powell acknowledged, noting that the pain would be infinitely greater if inflation were built into the economy.
“The Fed has always been on the line to continue to tighten aggressively, yet the market has arbitrarily decided to price in a slowdown in rate hikes or even a reversal to monetary easing,” he adds.
“Aversion to investment risk is also evident in Asia today, with bearish sentiment following that on Wall Street last week, while futures on Monday show no change in trend,” noted Yeap Jun Rong, chief strategist at IG in Singapore.
China’s macroeconomic data released at the weekend also showed that a strong recovery still needs time, with industrial profits falling 1.1% year-on-year in the half-year amid renewed pandemic restrictions COVID-19.
Source: Capital
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