Asian stocks fell to three-week lows on Monday, with Japan leading the declines, after U.S. jobs data heightened concerns that the Federal Reserve is too late in cutting interest rates.
Japan’s Nikkei 225 index fell to a one-month low as the yen’s recent gains weighed on earnings outlooks for exporters, with the economy growing at a slower-than-expected pace. Shares in Australia and South Korea also posted losses, dragging the Asia-Pacific equity index to its lowest since Aug. 16. The yen, which had previously been buoyed by the Bank of Japan’s interest rate hike in July and expectations of a Fed rate cut, traded below 143 yen per dollar.
Fears of a slowdown in the US economy
Signs of a slowing US economy that could spread to export-dependent Asia are compounding concerns in the region. The US labour market appears to be losing steam, China’s economy remains in recession and enthusiasm for semiconductor companies like Nvidia has faded, adding to the headwinds.
“Asian stock markets, especially in tech-heavy regions like Japan, Taiwan and South Korea, are bracing for a storm as their economies are particularly sensitive to the deepening global slowdown,” said Hebei Chen, an analyst at IG Markets. “If the cloud of a faltering US economy extends to the global economy, risk-sensitive currencies like the Australian dollar could soon come under significant pressure.”
Selling wave on Wall Street
Disappointing U.S. jobs data led to a broad sell-off on Wall Street on Friday. U.S. 2-year Treasuries, which are more sensitive to monetary policy changes, gave up some of Friday’s gains, and the dollar rose slightly on Monday. Australian and New Zealand bonds followed suit.
Elsewhere in Asia, eyes will be on Chinese assets as officials try to boost sentiment by removing foreign ownership limits in manufacturing and healthcare sectors. Shares in Seven & i Holdings are expected to be closely watched amid speculation of a takeover bid from Alimentation Couche-Tard.
In other major commodity markets, iron ore fell below $90 a tonne for the first time since late 2022, while oil prices rose from their lowest levels since 2021.
September is shaping up to be a volatile month for markets, with global stocks and commodities falling amid concerns about slowing global growth. The jitters are set to deepen, especially with China’s inflation and producer price data due on Monday, highlighting the economic downturn that policymakers are struggling to contain.
US inflation data awaits
Traders will be watching U.S. inflation data this week amid growing concerns that the Federal Reserve is too late to cut interest rates as recession risks rise. Treasury Secretary Janet Yellen sought to calm concerns over the weekend, saying she saw no warning signs in the financial system and reiterating her view that the U.S. economy has achieved a soft landing scenario despite slowing job growth. In contrast, Federal Reserve Governor Christopher Waller said he was open to the possibility of a deeper rate cut.
“Federal policymakers’ comments after the jobs data did not signal a pressing need for a 50 basis point rate cut,” said Diana Mussina, deputy chief economist at AMP in Sydney. She said she expected only a 25 basis point cut in September, with the risk of a bigger cut if the data suggests it is needed.
