Most Asian share markets tumbled on Monday while the US dollar added to gains made after Federal Reserve chair Janet Yellen indicated a US interest rate increase remains on the cards for this year.
European markets also looked set for a weak start, with financial spreadbetters expecting Germany’s Dax to open down 0.7 per cent, and the blue-chip Euro Stoxx 50 to begin the day 0.6 per cent lower. British markets are closed for a holiday. MSCI’s broadest index of Asia-Pacific shares outside Japan extended losses to 1 per cent.
Japan's Nikkei bucked the trend, closing 2.3 per cent higher, the biggest one-day gain in three weeks, as the yen weakened against the resurgent dollar. China's CSI 300 index and the Shanghai Composite slipped 0.2 per cent. Hong Kong's Hang Seng shed 0.4 per cent.
The case for a US rate hike has strengthened in recent months, with a lot of new jobs being created, and economic growth looks likely to continue at a moderate pace, Yellen said in a speech at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming, on Friday. While Yellen did not give guidance on what the central bank needs to see before raising rates, she said the Fed already thinks it is close to meeting its goals of maximum employment and stable prices. The odds of a hike in September rose to 33 per cent following the comments, from 21 per cent on Thursday, according to CME Group’s FedWatch tool. Traders were pricing in a 59.1 per cent chance of a hike in December, up from 51.8 per cent on Thursday.
Uncertainty
“While the move towards another Fed rate hike will likely cause bouts of consternation in investment markets I don’t see the same degree of uncertainty that we saw around last year’s Fed rate hike,” Shane Oliver, head of investment strategy at AMP Capital in Sydney, wrote in a note. “It’s clear from the Fed’s actions this year that it is aware of global risks, the impact of its own actions on those risks and any potential blow back to the US economy and of the impact of a rising US dollar in doing some of its work for it.”
The comments from Yellen and Fischer dragged Wall Street lower at the close. But they proved a boon for the US currency, with the dollar index, which tracks the greenback against six global peers, jumping 0.8 per cent on Friday. It held steady at 95.552 on Monday. The dollar rose 0.5 per cent to a two-week high of 102.34 yen on Monday. That followed gains of 1.3 per cent on Friday, its biggest one-day advance in almost seven weeks.
Stimulus
Japanese household spending and retail sales data for July are due on Tuesday. Investors are seeking some sign that Prime Minister Shinzo Abe’s massive stimulus programmes are having an effect, after figures on Friday showed a decline in consumer prices by the most in three years in July.
The euro was flat at $1.120 after tumbling 0.8 per cent on Friday, its biggest one-day slide since July 15th. In commodities, crude prices retreated on the rally in the dollar and concerns about growing output after exports from Iraq in August exceeded July levels. Iran also said late last week that it would only co-operate in upcoming producer talks in September if other exporters recognised Tehran’s right to regain market share lost during international sanctions that were only lifted in January. US crude futures dropped 1.5 per cent to $46.95. Global benchmark Brent crude retreated 1.2 per cent to $49.31. The stronger dollar also weighed on gold. Spot gold slipped 0.2 per cent to $1,318.10, after earlier touching a five-week low.
Reuters
