HONG KONG: Asian markets tumbled on Monday after US stocks were pummelled at the end of last week, with traders fretting that a surging US economy will lead to sharp interest rate hikes by the Federal Reserve.
The selling was also fuelled by profit-taking after a blistering January that saw several indexes strike record or multi-year highs, while tech firms took a hit from disappointing reports by Apple and Google parent Alphabet.
Fresh turmoil in Washington after Donald Trump approved the declassification of a controversial memo linked to the FBI’s Russia probe also caused a stir.
In New York, on Friday the Dow plunged more than 2 per cent after the release of a healthy January jobs report that showed the biggest increase in wages in 9 years.
The news sent bench market 10-year Treasury yields – a key guide to interest rates globally – to fresh four-year highs and ratcheted up concerns that monetary policy will tighten more than thought before.
Equity markets were already in negative territory last week owing to rising bond yields and profit-taking.
Moreover, the losses have seeped through to Asia this week. Tokyo ended the morning session 2.4 per cent lower, while Hong Kong sank 1.9 per cent and Sydney shed 1.6 per cent.
Seoul lost 1.6 per cent, Singapore dropped 1.4 per cent and Taipei dived more than 2 per cent, with Manila, Jakarta and Wellington also suffering in the heaviest blood-letting in the region this year. Meanwhile, Pakistan Stock Exchange (PSX) was closed on Monday due to Kashmir day.
“It is going to be a nervous start to the week for traders across all markets as they wonder if last week’s reversal in US stocks and the ugly close on Friday … is likely the start of something bigger,” said AxiTrader Greg Mckenna Chief Market Strategist.
Correction ahead?
The surge in bond yields, fuelled by a surging US economy and corporate earnings, has spooked traders worried that the Federal Reserve will lift borrowing costs more than the three times initially expected this year.
“When interest rates rise, it makes equities look less attractive to fixed income investors, but also it chokes off economic growth,” American Century Investments Chief Investment Officer and Senior Portfolio Manager of multi-asset strategies Rich Weiss said.
“When longer-term interest rates rise, that tends to stem inflation and economic growth, and that feeds back into corporate profits,” he told Bloomberg News.
Other analysts warned markets could see a 10 per cent correction over the coming weeks as traders re-adjust their outlooks for interest rates.
Among the biggest losers were tech firms after Apple announced disappointing sales of its flagship iPhone X and Alphabet reported a fourth-quarter loss. Both companies fell more than 4 per cent Friday.
Hong Kong-listed Tencent plunged almost 3 per cent on Monday and AAC technologies was 0.9 per cent down, while Sharp dived 4 per cent in Tokyo and in Seoul Samsung was 3 per cent off.
Energy firms across Asia were also sharply down as crude tanked on the back of news that US drillers brought more rigs back online to take advantage of a recent lift in prices.
CNOOC, PetroChina and Sinopec all sank more than 3 per cent in Hong Kong, while Inpex bombed 4.5 per cent in Tokyo and Woodside Petroleum was off 2.5 per cent in Sydney.
