Asian stock markets are poised to close the week on a negative note, as escalating geopolitical tensions and economic uncertainties weigh on investor sentiment. This downturn occurs despite the global rate easing cycle beginning to take effect.
The week has been marked by significant market volatility, driven by a sell-off in technology stocks following heightened Sino-U.S. trade tensions. Additional factors contributing to the market’s struggles include uncertainty surrounding U.S. President Joe Biden’s re-election prospects, disappointing economic data from China, and a lackluster outcome from the recent third plenum.
In the foreign exchange market, Tokyo’s recent interventions have added to market apprehension.
“We might be witnessing just the beginning of increased volatility,” said Matt Simpson, senior market analyst at City Index.
The MSCI Asia-Pacific index, excluding Japan, fell 0.1% and is on track for its worst week in over a month, with a cumulative loss of 2.4%.
Japan’s Nikkei index dropped to its lowest level in more than two weeks, down 0.1% and extending a 2.4% decline from the previous session. It is expected to end the week with a 2.7% loss, its steepest weekly decline in three months.
Technology shares continued to be under pressure, with South Korea’s KOSPI index and Taiwan’s stock market both dropping over 1%. South Korean chipmaker SK Hynix saw a 0.7% decline, although Japan’s Tokyo Electron rebounded by 2.6% after an 8.75% drop on Thursday. Taiwan’s TSMC, despite reporting better-than-expected earnings and raising its full-year revenue forecast, saw its shares fall by 1.3%.
In China, investor disappointment grew over the vague details provided on implementing economic policy goals following the third plenum. Chinese blue-chip stocks fell by 0.08% in early trading, the Shanghai Composite Index decreased by 0.07%, and Hong Kong’s Hang Seng index dropped 1.5%.
Brendan McKenna, international economist at Wells Fargo, remarked, “The initial communique from the third plenum suggests no significant changes to the long-term direction of the Chinese economy.”
The onshore yuan weakened slightly to 7.2626 per dollar.
RATES AND CURRENCIES
The euro fell 0.02% to $1.0893, having previously dropped 0.4% after the European Central Bank (ECB) held interest rates steady, with hints of a potential cut in September due to a downgraded economic outlook for the euro zone.
“The ECB’s policy statement revealed no substantial changes from June, maintaining a data-dependent approach,” noted Nick Rees, FX market analyst at MonFX. “We still anticipate a September rate cut.”
The U.S. dollar gained ground, rebounding from a four-month low against a basket of currencies. The pound dipped 0.03% to $1.2942, and the Australian dollar fell 0.12% to $0.6698. The dollar’s strength was supported by robust U.S. manufacturing and job data, despite expectations of a potential September rate cut by the Federal Reserve.
The Japanese yen strengthened slightly to 157.31, bolstered by suspected intervention from Japanese authorities and increasing expectations for a potential rate hike by the Bank of Japan due to rising core inflation.
COMMODITIES
In commodities, oil prices declined as mixed economic signals impacted investor sentiment. Brent crude futures fell 0.58% to $84.62 per barrel, while U.S. crude futures dropped 0.81% to $82.15 per barrel. Gold also retreated 0.8% to $2,425.19 per ounce, pulling back from a record high reached earlier in the week amid prospects of lower global interest rates.
