Asian stocks, US futures drop as Fed outlook takes toll; Crude, gold prices decline Stocks fell along with US equity futures Monday on escalating threats to global economic growth, in particular the Federal Reserve’s commitment to tighter monetary settings to quell inflation. Losses for bourses in Japan, Australia and South Korea were in the region of 1% following the worst week for global shares since late June. S&P 500, Nasdaq 100 and European contracts suffered losses and a dollar gauge was at a more than one-month peak, further signs of investor wariness. Sovereign-bonds in Australia and New Zealand dropped and the US 10-year Treasury yield climbed to about 2.99%, extending a selloff from Friday. A jump in global shares from June’s bear-market lows has begun to cool, weighed down by repeated Fed warnings that interest rates are going higher. Troubling global economic developments, lately including power shortages in a Chinese industrial heartland, are also hanging over investors. Key for markets this week is the Fed’s symposium at Jackson Hole, Wyoming. The recent stock bounce has loosened financial conditions, which makes it harder to tackle inflation. The symposium gives Fed Chair Jerome Powell a platform to reset the market’s expectations for a pivot to slower rate hikes. The latter bets have helped to drive the recent equity rebound but are vulnerable to the possibility of persistently elevated price pressures even as economic growth stumbles. ‘Remain Hawkish’ “It is likely central bankers, including Fed Chair Powell, will remain hawkish in dealing with inflation albeit with a bit of caution creeping in given the emerging economic downturn,” Shane Oliver, head of investment strategy at AMP Services Ltd., wrote in a note. In China, Bloomberg Economics expects loan prime rates to fall by 10 basis points later Monday, as banks follow the People’s Bank of China’s decision to cut a key policy rate. The world’s second-largest economy faces mobility curbs amid rising Covid cases and continuing property-sector woes, aside from a power crunch in Sichuan province, a key manufacturing hub. The Chinese demand outlook is weighing in oil, which sank below $90 a barrel. Traders monitor Iran nuclear talks that could lead to more supplies. What to watch this week: China loan prime rates, MondayUS new home sales, S&P Global PMIs, TuesdayFed’s Neel Kashkari speaks at Q&A session, TuesdayUS durable goods, MBA mortgage applications, pending home sales, WednesdayUS GDP, initial jobless claims. ThursdayFed annual policy symposium in Jackson Hole, Wyoming, ThursdayECB’s July minutes, ThursdayFed Chair Powell speaks at Jackson Hole, FridayUS consumer income, PCE deflator, FridaySome of the main moves in markets: StocksS&P 500 futures lost 0.6% as of 9:26 a.m. in Tokyo. The S&P 500 fell 1.3%Nasdaq 100 futures shed 0.7%. The Nasdaq 100 fell 2%Japan’s Topix index fell 0.7%Australia’s S&P/ASX 200 index was 1.1% lowerSouth Korea’s Kospi index declined 1.2%Hang Seng index futures fell 0.9% earlier Also Read: Equities best asset class to beat inflation, here’s why; Do not ignore these 7 rules while investing CurrenciesThe Bloomberg Dollar Spot Index added 0.2%The euro was at $1.0027, down 0.1%The Japanese yen was at 137.24 per dollar, down 0.2%The offshore yuan was at 6.8440 per dollar, down 0.1% BondsThe yield on 10-year Treasuries advanced two basis points to 2.99%Australia’s 10-year yield rose 14 basis points to 3.54% CommoditiesWest Texas Intermediate crude dropped 1.2% to $89.70 a barrelGold was at $1,745.26 an ounce, down 0.1%
However, he believes that the impact on the Indian market is going to be temporary since there could be some short-term impact on flows into Indian equity markets. But since the Indian economy is on a strong wicket and will continue to remain resilient.
“Improved fiscal situation, controlled current deficit, stable interest scenario combined with good corporate earnings should lead to limited impact on the Indian bond market and equity market too,” he added.
The midcap and smallcap indices took a bigger knock with the BSE MidCap fell 2.51%, while BSE SmallCap index dived 4.18%. According to Amnish Aggarwal, head, research, Prabhudas Lilladher, the valuations were already high and some correction was expected. “If the situation sustains as it is then further correction can’t be ruled out,” Aggarwal said.
Telecommunication and industrials indices were the top laggards with BSE Telecommunication declining 3.82%, followed by BSE Industrials falling 3.26%. JSW Steel (-2.99%), Tata Steel (-2.52%) and Tata Consultancy Services (-2.44%) were the top losers of Sensex.
Surprisingly, both foreign portfolio investors and domestic institutional investors were net buyers today. While, FPIs net bought shares worth Rs 252.25 crore, DIIs have purchased shares worth Rs 1,111.84 crore, as per provisional data from exchanges.
Calling this a “normal phenomena” Pankaj Pandey, head, research, ICICI Direct said, “I will not really give too much weight to a single day buying figure. Amid concerns of elevated interest rate and geopolitical tensions, in a typical market cycle, 8-10% correction is possible at any point in time.”
The brunt of geopolitical conflict, elevated interest rates and rising crude oil prices was also felt by other Asian- Pacific markets. Jakarta Composite Index lost 1.57% followed by Shanghai Composite Index and PSEi, which fell 1.47% and 0.89%, respectively. Nikkei and KOSPI declined 0.83% and 0.76%.