Asian Markets Hit by Dimming US Rate Hopes, Taiwan Quake

AFP/APP 

Hong Kong: Asian markets tumbled Wednesday as investors grew increasingly skeptical that the Federal Reserve will cut interest rates as much as hoped this year, while a massive earthquake in Taiwan added to the sense of gloom.

Traders have pushed equities higher for months, driven by optimism that the central bank will begin easing monetary policy this year as inflation comes back towards the officials’ two percent target.

But forecast-busting data on a range of indicators, including inflation, factory activity, and jobs, has dealt a hefty blow to those hopes, and now expectations are beginning to wane.

The year began with expectations for six cuts in 2024, but that has slowly been whittled down to three, and some are now concerned that the Fed could even cut fewer than that.

Two central bank officials said on Tuesday that they still saw three this year but were in no rush to act too quickly.

Cleveland president Loretta Mester, however, warned that it was a close call on whether decision-makers should make fewer reductions.

She also lifted her outlook for the long-term level of rates to 3.0 percent from 2.5 percent, compared with the Fed’s 2.6 percent. Rates are currently sitting at a 23-year high of between 5.25 and 5.50 percent.

And San Francisco boss Mary Daly added that the three cuts were “a very reasonable baseline” but added that economic growth “is going strong, so there’s really no urgency to adjust the rate.”.

Better-than-expected figures on job openings and factory orders, along with rising oil prices, have added to the sense that more work will be needed to bring inflation down.

“Our base case is that the Fed engineers a soft landing and starts to cut rates in the second half of the year,” Gargi Chaudhuri, of BlackRock, said.

“The downside risks to economic growth have diminished, so the risk of only two Fed rate cuts now appears higher than the risk of four cuts.”

After a retreat on Wall Street, which has also been fuelled by profit-taking after a run-up that has seen the Dow and S&P 500 hit multiple records, markets across Asia struggled.

Tokyo sank around one percent, while Hong Kong, Sydney, Seoul, and Manila were off more. Shanghai, Singapore, Wellington, and Jakarta were also well in the red. Mumbai and Bangkok rose.

London fell to the top, while Paris and Frankfurt were both higher.

Taipei fell after a deadly 7.4-magnitude earthquake just off Taiwan’s east coast, which added to the regional uncertainty, though there was some relief that the threat of a tsunami had dissipated.

Still, traders were keeping tabs on the effects of the tremor, which left several buildings collapsed and forced chip giants TSMC and United Microelectronics Corporation to halt work at their plants.

TSMC was down more than one percent, and UMC shed one percent.

Gold prices briefly struck a fresh record high of $2,288, building on its run this year that has been fuelled by hopes for central bank rate cuts as well as rising tensions in the Middle East, which has boosted its demand as a safe haven in times of turmoil.

Key figures at 0810 GMT

Tokyo-Nikkei 225: DOWN 1.0 percent at 39,451.85 (close)

Hong Kong-Hong Kong Seng Index: DOWN 1.2 percent at 16,725.10 (close)

Shanghai Composite: DOWN 0.2 percent at 3,069.30 (close) 

London FTSE 100: DOWN 0.5 percent at 7,898.02

Dollar/yen: UP at 151.68 yen from 151.58 yen on Tuesday

Euro/dollar: UP at $1.0772 from $1.0771 

Pound/dollar: DOWN at $1.2565 from $1.2577

Euro/pound: UP at 85.72 pence from 85.61 pence

West Texas Intermediate: DOWN 0.1 percent at $85.05 per barrel

Brent North Sea Crude: FLAT at $88.90 per barrel

New York Dow: DOWN 1.0 percent at 39,170.24 (close)