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Asian stocks fall as dollar hits six-week high

Atheer – External Sources

Asian stocks fell on Thursday after Wall Street marked its worst monthly performance in two years, as the impact from the comments of new Federal Reserve chief, Jerome Powell, reverberated across the broader risk asset markets.

According to Reuters, investors have been on edge in recent weeks amid concerns that higher interest rates in advanced economies, led by the United States, could dent world growth.

Powell, in his first public appearance as head of the Federal Reserve, vowed on Tuesday at a congressional hearing to prevent the economy from overheating, while sticking with a plan to gradually raise interest rates. The comments rekindled speculation in the equity markets about the pace of US monetary tightening this year being more rapid than expected, amid concerns that higher borrowing rates could crimp corporate activity and cool economic growth.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.35 percent and headed for its third day of losses. Chinese shares bucked the trend and edged up after a private survey showed growth in China’s manufacturing sector picking up to a six-month high. Shanghai shares rose 0.4 percent, while Australian stocks fell 0.85 percent. South Korea’s KOSPI and Japan’s Nikkei dropped 1.2 percent and 1.6 percent respectively.

The losses in Asia came amid a broad selloff on Wall Street, where the Dow and S&P 500 capped their worst months since January 2016 overnight, after suffering sharp losses early in February.

The Dow scaled an all-time high late in January, before falling around twelve percent from the peak at the start of February, as a rise in US yields to multi-year highs unnerved Wall Street. It went on to recover a bulk of those losses before the rebound stalled following Powell’s comments.

The Fed’s last round of economic projections in December pointed to three rate increases this year, but views expressed by Powell prompted investors to increase bets on four rate increases in 2018.

The dollar has been supported after the Fed chair’s comments. The dollar index against a basket of six major currencies rose to 90.744, its highest since the 19th of January and last stood at 90.717. The index has managed to claw back from a three-year low of 88.253, set in mid-February amid fears of a ballooning US budget deficit and lingering worries that Washington could pursue a weak dollar policy.

“The comeback by the dollar could negatively impact crude oil prices and in turn cool inflation expectations. In that case, the equity markets could be forced to undergo significant adjustments,” said Makoto Noji, senior strategist at SMBC Nikko Securities in Tokyo.

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