Asian markets sank Friday as a mini rally came to a juddering halt ahead of a keenly awaited speech by Federal Reserve boss Jerome Powell later in the day, with traders increasingly worried the bank will hike interest rates further.
The losses tracked a sell-off on Wall Street, where tech titans including Amazon and Apple were among the big losers as Treasury yields rose and data indicated the US jobs market was still resilient in the face of tighter financial conditions.
The Fed’s insistence that decision-making would be data-dependent has seen traders react to most economic indicators in a “good news is bad news” fashion, with healthy data seen as likely pressuring officials to hike to temper inflation.
A string of positive readings on the economy and jobs have weighed on equities this month, while policymakers appear split on the best way forward as they try to tame prices while looking to avoid causing a recession.
Markets enjoyed a strong end to July on optimism that that month’s rate hike would be the last, with inflation continuing to ease and other data showing a softening in the economy. Some observers even suggested a cut could be on the cards at the end of the year or early 2024.
But that has given way to the realisation that more work is needed to get inflation down to — and held at — the Fed’s two percent target.
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Analysts said Powell must tread a fine line in his Friday speech at the annual symposium of central bankers and business leaders in Jackson Hole, Wyoming.
“He will caution against easing too soon. I think that’s going to be a theme here,” former Fed vice chair Donald Kohn said.
“It would be actually helpful for him to spell out what he means by data-dependence, tamping down the very strong reaction of markets to each piece of data.”
And Krishna Guha, of Evercore ISI, added the Fed chief would likely avoid saying when rates would be at an ideal level when they are neither boosting nor restricting the economy.
“Expect a balanced assessment with no abrupt hawkishness, but no ‘Mission Accomplished’,” he said. “The Fed has not come this far to let inflation slip out of its grasp.”
A hawkish speech at last year’s Jackson Hole gathering sent shivers through world markets. European Central Bank head Christine Lagarde is due to speak later in the day as well.
Data showing fewer jobless claims last week dented sentiment in New York, while profit-taking after a Nvidia-fuelled tech surge added to the selling pressure.
Meanwhile, differing views from Fed officials provided little help.
Boston Fed boss Susan Collins told Yahoo! Finance she thought more increases were needed, while Philadelphia head Patrick Harker thought they would stay where they are now — at a two-decade high — telling CNBC that “we’ve probably done enough”.
In early Asian trade, Hong Kong, Shanghai, Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei and Manila were all in the red.
China’s economic woes continue to drag on sentiment, and in an attempt to staunch losses in markets, Beijing officials urged the country’s pension fund as well as some large banks and insurers to buy up equities.
The call follows similar calls for funds and big institutions to stop offloading shares and companies to buy their own stock.
Key figures around 0230 GMT
Tokyo – Nikkei 225: DOWN 1.9 percent at 31,666.36 (break)
Hong Kong – Hang Seng Index: DOWN 1.0 percent at 18,024.32
Shanghai – Composite: DOWN 0.2 percent at 3,074.92
Dollar/yen: UP at 146.15 from 145.80 yen on Thursday
Euro/dollar: DOWN at $1.0784 from $1.0811
Pound/dollar: DOWN at $1.2574 from $1.2596
Euro/pound: UP at 85.76 pence from 85.81 pence
West Texas Intermediate: UP 0.4 percent at $79.35 per barrel
Brent North Sea crude: UP 0.4 percent at $83.65 per barrel
New York – Dow: DOWN 1.1 percent at 34,099.42 (close)
London – FTSE 100: UP 0.2 percent at 7,333.63 (close)
— Bloomberg News contributed to this story —