Stocks across Asia plunged on Friday as investors girded for interest rate clues from Federal Reserve Chair Jerome Powell’s upcoming speech at the annual Jackson Hole symposium.
The retreat comes despite Japan reporting slower-than-expected inflation that could give its central bank space to hold off on tightening policy.
Powell’s remarks, slated for Friday, will be scrutinized for any fresh rate hike hints. Another sharp 75 basis point increase is expected at the September FOMC meeting. But the markets are focused on whether the Fed could ease back its aggressive pace of hikes after September.
Nikkei Sinks Nearly 2%, Led by Plunge in Tech Shares
The Nikkei 225 in Japan shed nearly 2%, recording the steepest losses across the Asia-Pacific region.
The index was dragged down by a rout in technology and internet stocks. Semiconductor equipment makers Advantest Corp and Tokyo Electron plunged 9.9% and 5.6%, respectively, to rank among the biggest losers on the benchmark.
Advantest is the fourth largest weighted firm on the Nikkei, while Tokyo Electron is the second largest. The sharp declines in these major tech names pulled the broader index sharply lower.
SoftBank Group, the Japanese investment conglomerate with sizable tech investments, saw its shares sink 3.8%.
With its nearly 2% decline, the Nikkei is poised to halt a four-day winning streak. The losses in Japan set the tone for broad risk-off sentiment across the Asia-Pacific region.
Hang Seng, Shanghai Composite Retreat as Fed Jitters Resurface
Other major Asia indexes also slumped as investors grew cautious ahead of Powell’s remarks. Rate hike worries clouded the outlook despite some signs of peaking inflation.
Hong Kong’s Hang Seng dropped 1%, dragged by a sell-off in its tech sector. Chinese stock benchmarks also weakened, though outperformed the broader region. The Shanghai Composite dipped 0.5% while the CSI 300 index lost 0.4%.
“The Fed is still sending hawkish signals, but there is uncertainty around the Jackson Hole symposium and what message Fed Chair Powell will deliver,” said David Chao, global market strategist at Invesco.
Kospi, ASX 200 Join Retreat as Rate Fear Resurfaces
In Australia, the benchmark ASX 200 lost 1%, with nearly all sectors finishing lower. Heavily weighted financials was among the worst hit.
Dovish Hopes Fade Amid Hawkish Fed Rhetoric
Some investors had bet the Fed would shift to a more dovish stance soon as signs of economic cooling emerge. But recent hawkish rhetoric from central bank officials has dashed hopes for an imminent policy easing.
The focus is now firmly on Powell’s speech for clarity on the Fed’s rate hike path. Further tightening signals could spur another pullback in global equities.
“The path higher for risk assets will remain volatile and uneven” until the Fed provides more guidance, Grant said.
Slower Japan Inflation Offers Some Respite
At least in Japan, there were some signs of inflation peaking. Core consumer prices in Tokyo rose 2.8% in August from a year earlier, easing from 2.9% in July and slightly below forecasts.
Nationwide core inflation also appears to be past its peak, slowing to 2.4% in July from 2.6% in June, though still above the Bank of Japan’s 2% target.
The moderation gives the BOJ room to maintain its ultra-dovish policy even as global peers aggressively tighten. This divergence could weaken the yen further.
US Stocks Plunge as Rally Stalls Ahead of Jackson Hole
Overnight on Wall Street, major indexes tumbled as a summer tech rally fizzled ahead of the Jackson Hole event. Investors are bracing for the possibility of more hawkish Fed signals.
The Dow Jones Industrial Average sank over 1.0%, its worst single-day drop since mid-June.
Chip stocks led the retreat as rate-sensitive sectors bore the brunt of mounting Fed worries. Nvidia lost over 4% after slipping from record highs.
All Eyes on Powell as Investors Seek Rate Clarity
With the Fed’s resolve to tame inflation taking precedence over growth concerns, policymakers have struck a hawkish tone in recent weeks.
That has shaken investor confidence and weighed on rate-sensitive tech and growth stocks that led markets higher over the summer. Now all eyes are on Powell to reassess the policy outlook.
“This speech is one that equity markets are paying close attention to, as investors try to accurately position portfolios based on potential changes to Fed policy,” said Mike Loewengart, head of model portfolio construction at E*TRADE Financial.
Further hawkish signals could spur another pullback in stocks and keep volatility elevated. But the Fed also faces risks from overtightening. Investors hope to get more clarity on how the central bank plans to balance those risks at Jackson Hole.
Can Japan’s Economy Weather Global Turbulence?
Beyond the Fed’s policy decision, Japan faces its own risks from a darkening global outlook. As a major exporter, its economy remains vulnerable to slowing overseas demand.
Still, Japan’sdued inflation and the yen’s slide to 24-year lows could provide some support, he added.
Others also see the yen’s weakness as a potential buffer against global shocks.
“The fragile yen is helping to absorb some of the impact from external forces buffeting Japan’s economy,” said Marcel Thieliant, senior economist at Capital Economics.
Asia-Pacific Markets Remain Vulnerable to Fed Surprises
With the US dollar trading near 20-year highs, Asian central banks also have limited room to diverge from the Fed’s hawkish stance. This leaves regional economies and markets susceptible to further policy surprises.
“Asia is caught between a rock and a hard place,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis. Rate hikes risk hurting growth, but easing policy could trigger capital outflows.
That challenging balancing act means volatility is likely to remain high in Asian markets until the outlook on US rate hikes becomes clearer.
This article does not constitute financial advice. Please conduct thorough research and consult an investment professional before making financial decisions.
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