Asian markets saw a notable decline on Wednesday, following a sudden and brief declaration of martial law in South Korea, which startled global investors. The Kospi Index in South Korea plunged by up to 2.3%, leading a broader regional selloff. The MSCI Asia Pacific Index dropped 0.6%, with stocks in Australia, Japan, and mainland China also experiencing losses. However, the South Korean won rebounded after its sharp drop in offshore trading the previous day.
The political turmoil in South Korea was triggered by President Yoon Suk Yeol’s unexpected announcement of martial law on Tuesday, which was swiftly rescinded. The controversial move has ignited calls for impeachment and heightened political uncertainty in one of Asia’s largest economies. The abrupt decision has left investors on edge, adding to existing market concerns driven by the looming return of former U.S. President Donald Trump and China’s ongoing economic challenges.
David Chao, Global Market Strategist at Invesco, noted that the situation remains fluid, with the possibility of continued market volatility. “Markets could experience further swings as the South Korean cabinet is likely to undergo a reshuffle and the potential impeachment process unfolds,” he said. “However, the long-term impact on South Korea’s economy and financial markets is expected to be limited.”
In response to the market turbulence, the Bank of Korea announced it would increase short-term liquidity through repurchasing operations and implement further stabilization measures until market conditions stabilize. Charu Chanana, Chief Investment Strategist at Saxo Markets, expressed confidence that the swift intervention by South Korean authorities would likely limit the regional impact. “While some uncertainty remains, the rapid response suggests the effect on broader Asian markets may be contained,” she said.
Meanwhile, in China, the central bank took steps to support the weakening yuan by setting a stronger-than-expected daily reference rate, following a decline to a one-year low in the previous trading session. However, a private survey revealed that China’s services sector expanded at a slower pace compared to the previous month, signaling that consumer demand remains subdued despite the government’s recent stimulus efforts.
Elsewhere, the Australian dollar took a hit after the country’s economic growth data for the third quarter showed sluggish performance. The Australian economy’s weak expansion is contributing to ongoing market concerns.
In the U.S., Treasury yields remained relatively stable at 4.23%, following a slight increase in the previous session. U.S. equity futures showed slight gains in Asian trading, with the S&P 500 marking another record-high close.
Investor attention is now turning to the upcoming U.S. payrolls report and Federal Reserve Chairman Jerome Powell’s remarks for guidance on the potential for a rate cut in December. Latest data pointed to a rebound in job openings and a decrease in layoffs, suggesting stabilization in the labor market. Mary Daly, President of the Federal Reserve Bank of San Francisco, stated that while a rate cut this month is not guaranteed, it remains under consideration.
In Europe, the euro held steady, while political tensions in France continued to draw attention. President Emmanuel Macron urged French lawmakers to put aside political rivalries and reject a vote of no-confidence that could destabilize his government.
On the commodity front, oil prices steadied after experiencing their biggest gain in over two weeks. Gold prices also held their ground following a surge on Tuesday, as the political instability in South Korea and France prompted a flight to safe-haven assets.
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