Asian shares dipped to their lowest levels in nine months on Thursday, while the dollar reached a two-month peak, reflecting concerns about China’s sluggish economic rebound and apprehensions that the Federal Reserve might still hike interest rates, leading to investor unease.
The broadest index of Asia-Pacific shares outside Japan, represented by MSCI (.MIAPJ0000PUS), tumbled to 495.03, marking its lowest point since November 29.
Asian stocks witness 8% drop so far in August 2023
It currently stands at 497.11, showing a decline of 1.14% and highlighting an 8% drop for August, setting the stage for its poorest monthly performance since September.
Thursday saw widespread declines across the Asia Pacific region, with Japan’s Nikkei (.N225) and Australia’s S&P/ASX 200 index (.AXJO) both down by 1%.
China’s CSI 300 Index (.CSI300) experienced a 0.45% decrease, while Hong Kong’s Hang Seng Index (.HSI) plunged by 1.7%, nearing its nine-month low.
China’s stock market has been grappling with challenges as a series of economic indicators have exposed the sluggishness of its post-pandemic recovery, causing investor dissatisfaction with policymakers’ measures thus far.
“Investors looking for more robust support from policymakers amidst sluggish activity have been left disappointed, as recent incremental steps have not been sufficient to restore confidence,” noted economist Taylor Nugent of NAB.
Compounding the concerns for the world’s second-largest economy is the deepening crisis in the property sector. Missed payments on investment products by a major Chinese trust company and a decline in home prices have further contributed to the prevailing pessimism.
Wall Street also experienced losses overnight, triggered by the release of minutes from the Fed’s July meeting, which revealed divisions among officials regarding the necessity for additional interest rate hikes.
While some participants highlighted the risks of excessively raising rates, most policymakers remained focused on combating inflation.
The U.S. central bank raised rates by 25 basis points in July after maintaining them in June. Fed Chair Jerome Powell stated that the economy still required a slowdown and weakening labor market for inflation to credibly return to the central bank’s 2% target.
The commentary from officials, including the more hawkish members, implies a potential pause in September, with the possibility of another hike in either the November or December meetings, as per ING economists.
The probability of the Fed maintaining its stance next month is estimated at 86%, as indicated by the CME FedWatch tool, with a 36% likelihood of a hike in November.
Benchmark 10-year yields reached 4.288%, their highest point since October 21, inching closer to a 16-year peak of 4.338%.
This surge in yields bolstered the dollar, with the dollar index touching a two-month high of 103.58, as investors sought safety.
Meanwhile, the Japanese yen weakened by 0.07% to 146.42 per dollar, marking a fresh nine-month low, as traders remained watchful for potential intervention comments from Japanese authorities.
Apprehensions regarding China and the trajectory of U.S. interest rates also reverberated in the commodities market, causing oil prices to decrease for the fourth consecutive session. U.S. crude registered a decline of 0.34%, settling at $79.11 per barrel, while Brent was down by 0.26% at $83.23.