Asian Shares Slide to Lowest Level This Year on Concerns of Prolonged U.S. Interest Rate Hikes
Singapore, October 3 (Reuters) – Asian shares fell to their lowest level this year on Tuesday as worries over higher U.S. interest rates for a longer period gripped markets. The yen also wobbled near a one-year low, keeping traders on alert for a possible intervention.
According to MSCI’s broadest index of Asia-Pacific shares outside Japan, the index fell 1.6% to its lowest level since November 28, 2022. Japan’s Nikkei fell 1.8%, while Hong Kong’s Hang Seng Index sank 3%. Chinese markets were closed for the week due to the Golden Week holiday.
European stocks were also expected to open lower, with futures indicating that the Eurostoxx 50 futures would be down 0.58%, German DAX futures would be 0.60% lower, and FTSE futures would be down 0.31%.
The concerns over prolonged U.S. interest rate hikes were fueled by U.S. Federal Reserve officials, who stated that monetary policy will need to remain restrictive for “some time” in order to bring inflation back down to the central bank’s 2% target.
“I remain willing to support raising the federal funds rate at a future meeting if the incoming data indicates that progress on inflation has stalled or is too slow to bring inflation to 2% in a timely way,” said Fed Governor Michelle Bowman in prepared remarks to a banking conference on Monday.
However, there is an ongoing debate over whether there will be another rate hike this year. Fed funds futures traders are currently pricing in a 26% chance of a rate hike in November and a 45% likelihood of an increase by December, according to the CME Group’s FedWatch Tool.
“We continue on this higher-for-longer narrative,” said Rob Carnell, Asia-Pacific head of research at ING. “Higher bond yields and a stronger dollar, for the moment, is the dominant story.”
In Australia, the S&P/ASX 200 index was 1.3% lower, while the Australian dollar fell 0.77% to $0.631 after the Reserve Bank of Australia held interest rates steady for a fourth month and showed no urgency to hike again. The central bank, however, repeated its warning that further tightening might be needed to bring inflation under control in a “reasonable timeframe.”
Another focus in the market is the Japanese yen, as it inches closer to the 150 per dollar mark. Traders have speculated that this level could lead to intervention from the authorities. Last September, Japanese authorities conducted their first intervention in 24 years when the yen weakened past 145 per dollar. There has been mounting speculation that they will intervene again, as the yen is under constant pressure due to a widening yield gap against the dollar.
Japanese Finance Minister Shunichi Suzuki said on Tuesday that authorities were closely watching the currency market and were ready to respond. He also repeated a warning against speculative moves that did not reflect economic fundamentals.
The dollar index, which measures the U.S. currency against six major rivals, rose 0.168% to scale a fresh 10-month peak.
In the commodities market, U.S. crude fell 0.84% to $88.07 per barrel, while Brent was at $89.76, down 1.05% on the day. Spot gold dropped 0.5% to $1,818.10 an ounce, and U.S. gold futures fell 0.56% to $1,819.80 an ounce.
Reporting by Ankur Banerjee; Editing by Jamie Freed. Our Standards: The Thomson Reuters Trust Principles. Acquire Licensing Rights.