Asian stocks were in retreat on Tuesday with the wind taken out of investors’ sails by warnings that interest rates will stay higher for much longer than was hoped.
US Treasury yields scaled fresh 16-year peaks, keeping the dollar near a 10-month high, following gloomy forecasts from the Federal Reserve and other major central banks that rates are likely to stay elevated for some time.
Asia-Pacific stock benchmarks sagged, with European equities also set for a weaker open, while crude oil continued to drift back from 10-month highs.
Japan’s Nikkei share average ended more than 1% lower, dragged by declines in heavyweight chip-related shares, but its losses were limited as investors bought value stocks for dividend payout rights.
Value shares see slower growth but tend to pay higher dividends to attract investors, while growth stocks tend to get hurt by higher interest rates as their potential lies in future cash flows.
The Nikkei share average fell 1.11%, or 363.57 points, to close at 32,315.05, while the broader Topix was down 0.57%, or 13.56 points, to 2,371.94.
China and Hong Kong stocks fell as lingering economic worries and geopolitical tensions weighed on sentiment, with thin trading ahead of China’s National Day holiday.
US President Joe Biden’s administration on Monday imposed new trade restrictions on 11 Chinese and five Russian companies, accusing some of supplying components to make drones for Russia’s war effort in Ukraine.
The Shanghai Composite Index lost 0.43%, or 13.33 points, to 3,102.27, while the Shenzhen Composite Index on China’s second exchange retreated 0.52%, or 9.89 points, to 1,894.68.
And the latest developments at property giants China Evergrande Group and China Oceanwide Holdings reversed a brief respite for China’s property sector, which accounts for roughly a quarter of its economy.
An index tracking Hong Kong-listed mainland developers slipped 1.3% while the benchmark Hang Seng Index dropped 1.46%, or 258.98 points, to 17,470.31.
Odds Shorten on Another Fed Rate Hike
Elsewhere across the region, in earlier trade, Seoul and Taipei were all off, while Sydney, Wellington and Jakarta were also lower. Mumbai edged ahead but MSCI’s broadest index of Asia-Pacific shares slumped 0.66%.
US stock futures pointed 0.35% lower, following a 0.4% rise for the S&P 500 overnight. Pan-European STOXX 50 futures fell 0.17%.
Traders now put the odds of another quarter-point Fed hike by January at a coin toss, and have pushed the likely start of rate cuts back to the summer.
Chicago Fed President Austan Goolsbee said on Monday that inflation staying entrenched above the central bank’s 2% target remains a bigger risk than tight Fed policy slowing the economy more than needed.
Minneapolis Fed President Neel Kashkari said more rate hikes are likely needed given the surprising resilience of the US economy.
The European Central Bank and Bank of England have also touted higher rates for longer in policy meetings since the middle of the month.
Crude Oil Prices Weak
The relative outperformance of the US economy, with investors increasingly betting on a soft landing while growth in the euro zone and Britain stagnate, has buoyed the dollar against those currencies.
The dollar held near an 11-month peak of 148.97 yen from overnight, raising the risk of intervention by Japanese authorities.
Gold drifted slightly lower to $1,914.15, extending its slump from above $1,947 over the past week.
Crude oil remained weak amid concerns that fuel demand will be crimped by major central banks holding interest rates higher for longer, even with supply expected to be tight.
Brent crude futures were down 38 cents at $92.91 a barrel, while US West Texas Intermediate crude futures were trading 34 cents lower at $89.34.
Tokyo – Nikkei 225 < DOWN 1.11% at 32,315.05 (close)
Hong Kong – Hang Seng Index < DOWN 1.46% at 17,470.31 (close)
Shanghai – Composite < DOWN 0.43% at 3,102.27 (close)
London – FTSE 100 < DOWN 0.15% at 7,612.89 (0827 BST)
New York – Dow > UP 0.13% at 34,006.88 (Monday close)
- Reuters with additional editing by Sean O’Meara