Asian markets plunged on Thursday following the worst session on Wall Street for months, as US President Donald Trump said the Federal Reserve had “gone crazy” with plans for higher interest rates.
Shanghai plummeted nearly five percent while Tokyo and Hong Kong both shed around four percent, as investors fretted about surging interest rates and the ongoing US-China trade war.
“All bets are off,” warned Stephen Innes, head of Asia-Pacific trading at OANDA, adding that markets were “fraught with peril”.
“The US equity bloodbath is taking no prisoners in Asia as a sea of red greets investors at the open, as equity deleveraging and liquidation intensifies,” he said.
Taipei and the Shenzhen Composite Index — which tracks stocks on China’s second exchange — were both down around six percent.
Seoul fell more than four percent and Sydney and Singapore both dropped more than 2.5 percent.
The steep drop in Asia followed Wednesday’s plunge in New York, with the Dow Jones dropping nearly 830 points — the biggest fall since February — after Trump’s latest criticism of the Federal Reserve.
“I think the Fed is making a mistake,” Trump told reporters as he arrived for a campaign rally ahead of the US mid-term elections.
Trump has repeatedly touted Wall Street records as proof of the success of his economic programme. But he downplayed the first major drop in months, saying it was a “correction that we’ve been waiting for”.
But International Monetary Fund chief Christine Lagarde hit back on Thursday, defending rate hikes that she said were justified by fundamentals.
“It is clearly a necessary development for those economies that are showing much improved growth, inflation that is picking up… unemployment that is extremely low,” she told reporters in Bali where the Fund is meeting.
Just beginning
The rout in US shares followed substantial losses on European bourses, due in part to tensions between Brussels and Rome over Italian budget plans that have revived fears about the eurozone.
Bourses in Paris and Frankfurt both lost more than two percent, while London fell 1.3 percent.
“It’s just a beginning,” CEB International research head Banny Lam told Bloomberg.
“The US tech bubble may take a while to burst and we are facing many external uncertainties — trade wars, risks in emerging markets currencies and oil price.”
Many of the biggest US names fell hard in Wednesday’s session, with Apple, Boeing and Facebook all slumping more than four percent and Amazon, Nike and Microsoft shedding more than five percent.
Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve rate hikes.
In Hong Kong — where the benchmark Hang Seng index is already down 15 percent this year — some of the biggest listed companies were also under pressure. Chinese internet group Tencent fell for the tenth consecutive day, dropping more than seven percent through morning trade.
China Mobile shares fell 3.7 percent, insurance group Ping An dropped 4.1 percent and China Construction Bank lodged a slide of 3.2 percent.
The turmoil on stock markets came after the International Monetary Fund slashed its global growth forecast Monday on worries over the US-China trade war and weakness in emerging markets.
In other markets, oil extended declines in Asian trade Thursday following a sharp build in US crude inventories and fears Hurricane Michael would hurt demand.
Key figures
Hong Kong – Hang Seng: DOWN 3.7 percent at 25,218.08
Shanghai – Composite: DOWN 4.9 percent at 2593.50
Tokyo – Nikkei 225: DOWN 3.9 percent at 22,590.86 (close)
Euro/dollar: UP at $1.1551 from $1.1523 at 2100 GMT on Wednesday
Pound/dollar: UP at $1.3231 from $1.3222
Dollar/yen: DOWN at 112.18 from 112.35 yen
Oil – Brent Crude: DOWN $1.33 at $81.76 per barrel
Oil – West Texas Intermediate: DOWN $1.12 at $72.05 per barrel
New York – Dow Jones: DOWN 3.2 percent at 25,598.74 (close)
New York – S&P 500: DOWN 3.3 percent at 2,785.68 (close)
New York – Nasdaq: DOWN 4.1 percent at 7,422.05 (close)
London – FTSE 100: DOWN 1.3 percent at 7,145.74 (close)
Paris – CAC 40: DOWN 2.1 percent at 5,206.22 (close)
Frankfurt – DAX 30: DOWN 2.2 percent at 11,712.50 (close).
Published in Daily Times, October 12th 2018.