Finance

Asian stocks are losing their eyes as fears about the US economy grow: markets are closing in

Published

1 week ago

August 5, 2024

Asian stocks are losing their eyes as fears about the US economy grow: markets are closing in

(Bloomberg) — Asian markets are poised for losses Monday as fears of a deeper economic slowdown in the U.S. have traders around the world concerned that the Federal Reserve may lag behind on rate cuts. Oil rose due to rising tensions in the Middle East.

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U.S. futures fell in early trading, following the fallout from heavy losses on Wall Street on Friday and Berkshire Hathaway Inc.’s announcement. last weekend that the company sold its stake in Apple Inc. reduced by almost half in the second quarter. Contracts indicate Australian, Japanese and Hong Kong shares will fall on Monday.

Berkshire’s sale will “immediately be seen as negative,” said Mark Lehmann, CEO of Citizens JMP Securities. “Apple is the number one player in the global consumer space and that is the statement about the global consumer.”

Oil rose in early Monday trading after Saudi Arabia raised the price of the crude it sells to Asia, and amid reports Iran may attack Israel to avenge the killings of Hezbollah and Hamas officials. Saudi Arabian and Israeli shares fell more than 2% on Sunday, surpassing Friday’s losses on Wall Street.

Japanese shares have fallen over the past two sessions on expectations for more domestic rate hikes. The broader Topix index fell more than 6% on Friday, marking its worst day since 2016. The yen continued to rise, reaching 145.78 against the dollar on Monday, the strongest since January.

Data on Friday showed U.S. nonfarm payrolls rose by 114,000 in July — one of the weakest numbers since the pandemic — and job growth was revised down in the previous two months. The unemployment rate unexpectedly rose for a fourth month to 4.3%, above the Federal Reserve’s final forecasts, leading to a closely watched recession indicator.

The S&P 500 saw its worst employment reaction in nearly two years, falling 1.8%. Intel Corp. fell 26% on gloomy growth forecasts, contributing to a string of bad tech earnings that sent the Nasdaq 100 down more than 10% from its peak and into a correction.

A worsening conflict in the Middle East threatens to cause even more turmoil in markets as investors prepare for a turbulent second half of the year. A gauge of bond market volatility has risen, while the VIX Index – Wall Street’s fear gauge – rose to its highest in almost 18 months, after a weak US jobs report raised fears of a recession as the focus on an already chaotic American election race.

“Over the coming months, global and Australian shares look vulnerable to further declines, suggesting it is too early to buy the dip,” said Shane Oliver, chief economist and head of investment strategy at AMP Ltd. in Sydney. “A correction is underway.”

Meanwhile, U.S. Treasury bonds rose on Friday, with policy-sensitive two-year yields falling to their lowest level since May 2023 as concerns mount. The Fed’s decision to keep interest rates at their highest level in 20 years threatens to trigger a deeper economic slowdown. Traders predict the Fed will cut rates by more than a full percentage point in 2024, with a higher chance of an outsized 50 basis point cut in September, data compiled by Bloomberg show.

“With the unemployment rate higher and core PCE inflation now lower than the Fed’s year-end forecasts, we believe the balance of risks is tilting toward more aggressive Fed action,” said Brian Rose, a senior US economist in the asset management division of UBS Group AG. . “We are changing our base case to rate cuts of 50 basis points in September and 25 basis points each in November and December,” after previously seeing only half that amount at year-end, he wrote in a letter to clients.

In Asia, traders will soon focus on private Caixin China services and composite activity data for a further gauge of the health of the world’s second-largest economy, after the manufacturing PMI unexpectedly contracted for the first time in nine months. The figures come as Chinese officials made clear in July that there would be limited aid to boost domestic consumption.

Elsewhere this week, inflation data will be released in Thailand and Chile, while Mexico and Peru will make policy decisions as debate rages over the prospects for the emerging market dollar and local currency bonds. The Reserve Bank of Australia’s policy meeting will be parsed to confirm expectations of easing towards the end of the year, while US economic activity and credit data and speeches from regional Fed bank presidents will be closely watched.

“Better data this week could provide some confidence to a heavily overbought bond market and provide reassurances for equities and credit,” Chris Weston, head of research at Pepperstone Group, wrote in a note to clients.

“Conversely, if the data continues to weaken and central banks fail to match market prices in their story, one thing seems clear: buying the dip in risk may not be as effective this time, while short sellers will have a lot more. prosperous hunting ground,” he said.

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