Asian markets fell on Wednesday as investors became increasingly skeptical that the U.S. Federal Reserve would cut interest rates as expected this year, and the earthquake in Taiwan added to the gloom.
Traders have been pushing stocks higher in recent months, buoyed by optimism that central banks will begin easing monetary policy this year as inflation recovers toward the authorities’ 2% target.
But disappointing data on a range of indicators, including inflation, factory activity and employment, have dealt a major blow to those hopes, and they are now starting to fade.
This year started with expectations for six rate cuts in 2024, but that has gradually been reduced to three, and some now worry the Fed could cut rates by fewer than that.
Two central bank officials said on Tuesday that they still expected three cases this year, but were in no hurry to act.
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But Cleveland President Loretta Mester warned that it’s a close call whether policymakers will scale back the cuts.
He also raised his outlook for long-term interest rates from 2.5% to 3.0% (versus the Fed’s 2.6%). Interest rates are currently at a 23-year high between 5.25% and 5.50%.
San Francisco President Mary Daly said three interest rate cuts were a “very reasonable standard,” but economic growth “has remained strong, so there is no urgency to adjust interest rates.” he added.
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Rising oil prices, as well as better-than-expected numbers for job openings and factory orders, have strengthened the view that more needs to be done to curb inflation.
“Our base case is that the Fed plans a soft landing and begins cutting rates in the second half of this year,” said Gargi Chaudhry of BlackRock.
“The downside risks to economic growth have diminished, so the risk of just two Fed rate cuts now appears to be higher than the risk of four cuts.”
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Markets across Asia struggled after a retreat on Wall Street, which was also helped by profit-taking after the Dow and S&P 500 set multiple records.
Tokyo fell by about 1%, while Sydney and Seoul fell further. Hong Kong, Shanghai, Singapore, Wellington, Manila and Jakarta also suffered significant deficits.
A magnitude 7.4 earthquake struck just off Taiwan’s east coast, causing the fall of the city of Taipei and adding to the uncertainty in the region, but there was also a sense of relief that the threat of a tsunami had passed.
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Still, traders are monitoring the effects of the quake, which destroyed several buildings and forced semiconductor giants TSMC and United Microelectronics Corp. to halt factory operations.
TSMC fell more than 1% and UMC fell 1%.
Gold prices briefly hit a record high of $2,288, with expectations for central bank interest rate cuts and rising tensions in the Middle East further accelerating this year’s rally, boosting demand as a safe haven in times of crisis. . confusion.
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Tokyo – Nikkei Stock Average: down 1.0% to 39,428.58 (break)
Hong Kong Hang Seng Index: down 0.6% to 16,832.94
Shanghai – Overall: down 0.2% to 3,067.57
Dollar/JPY: rose to 151.60 yen from 151.58 yen on Tuesday
EUR/USD: rose from $1.0771 to $1.0774
GBP/USD: down from $1.2577 to $1.2573
EUR/GBP: up from 85.61p to 85.69p
West Texas Intermediate: flat, $85.13 per barrel
Brent crude: up 0.1% to $88.98 per barrel
New York – Dow: down 1.0% to 39,170.24 (closing price)
London – FTSE 100: down 0.2% to 7,935.09 (close)
Dan/JFX
