Asian shares fell to six-week lows on Thursday while the dollar jumped to two-year highs as the U.S. Federal Reserve poured cold water on market expectations of a lengthy easing cycle following a 25 basis-point rate cut.
MSCI’s broadest index of Asia-Pacific shares outside Japan faltered 0.4%, extending losses for a fifth day to the lowest since mid-June.
Japan’s Nikkei reversed early losses and were a shade higher, while Australian shares declined 0.1%. Chinese shares opened in the red with the blue-chip index down 0.3%.
E-minis for the S&P500 clawed back early losses and were marginally higher, after a sharp drop on Wall Street.
Global share markets recoiled overnight after U.S. Federal Reserve Chair Jerome Powell said Wednesday’s easing was “not the beginning of a long series of rate cuts”.
Powell characterized the rate cut as “a mid-cycle adjustment to policy”, citing signs of a global slowdown, simmering U.S. trade tensions and a desire to boost too-low inflation. Markets took that as a sign that sharp further cuts were not imminent.
Riskier assets such as shares have had a golden run in the past decade as global central banks have kept monetary policies stimulatory, world growth has been strong and corporate profits have surged. But there are now growing worries over how much longer the rally can run as trade disputes drag on the global economy.
The United States and China on Wednesday ended a brief round of trade talks without much progress in ending their year-long tariff war.
“The broader global trade dynamic remains a challenge,” Morgan Stanley strategist Michael Zezas said, referring to trade skirmishes between Japan and South Korea and U.S.-Europe negotiations over auto tariffs.
“Trade should continue to drag on corporate confidence, capex and global growth in the near term.”
Downbeat data and factory surveys on Thursday pointed to further weakness for Asia’s trade-reliant economies.
South Korea’s exports tumbled for an eighth straight month in July amid persistently weak global demand and an escalating dispute with Japan, while its new export orders shrank the most in about six years.
South Korea, the world’s sixth-largest exporter, is the first major industrial economy to release trade data each month, providing an early assessment on the health of global demand.
Pressure on Chinese factories eased slightly, but manufacturing activity continued to shrink. - Reuters-