Asia Pacific shares suffer sell-off amid prospect of US rate rise


Shares fell across Asia Pacific on Monday with UK and European stock markets poised to follow suit after investors were rattled by the prospect of a rise in US interest rates as early as next week.

Following the lead from a sharp sell-off on Wall Street, Japan’s Nikkei average was down 1.51% while the MSCI index for other shares across the region fell 2.2%. It was the largest daily drop since the frenzy caused by Britain’s vote in late June to leave the European Union.

Australian stocks sank 2.22% at 1.30pm local time with the country’s large banking sector badly hit by suggestions that the US Federal Reserve could raise borrowing costs at its meeting next week.

A near 4% fall in oil prices, also put pressure on the Australian marlket where the large resopurces companies such as Rio Tinto, BHP Billiton and Woodside Petroleum were all down.

The FTSE 100 benchmark in London was set to open down nearly 100 points, or almost 1.5%, according to online trading firm IG. Germany’s Dax 30 was set to drop 231 points, or 2.2%.

Some Fed members have been trying to convince markets that the September meeting would be live for a hike, even though futures 0?FF: only imply a one-in-four chance of a move.

No less than three Fed officials are expected to speak later on Monday, including board member and noted dove Lael Brainard. Any hint of hawkishness would likely further pressure bonds and equities.

Market participants are wondering if maybe [Brainard] is being wheeled out to give the market one last warning of a rate hike at next week’s meeting, said Marshall Gittler, head of research at broker FXPRIMUS.

The thinking is that if someone as dovish as she is starts talking like a hawk, people will notice. Her speech will be closely examined.

Chris Weston at IG in Melbourne said: Perhaps Lael Brainard can cool tensions of a near-term hike from the Fed. However given her pessimistic view of late expect any clear hints of a hike this year to be magnified, in turn causing the global sell-off in fixed income to ramp up.

Such risks led the Chicago Board options exchange volatility index to close at its highest level since late June on Friday. The Dow shed 2.13% on Friday, while the S&P 500 lost 2.45% and the Nasdaq 2.54%.

Government bond yields have been pushed to historic lows by years of monetary easing and made returns on equities seem relatively more attractive in comparison. Any tightening of that easy money approach, such as a Fed rate hike, will weigh on stock valuations.

The yield on benchmark German debt, for instance, had turned positive for the first time since July 22 and ended at 0.02%, its highest since 23 June. Yields on US 10-year and 30-year paper hit 11-week peaks.

In the forex market, the sudden bout of risk aversion benefited safe havens such as the yen while hitting carry trades in higher yielding currencies including the Australian dollar.

The Aussie has lost 1.5% against the yen in two sessions to stand at 77.21, while the Japanese currency was firm on the US dollar at 102.55.

The euro was sidelined on the dollar at $1.1239 after weak German trade data dragged it down from $1.1271 on Friday. The dollar index, which tracks it against a basket of six currencies, eased fractionally to 95.317.

Adding to the jittery mood on Monday was news that Democratic candidate Hillary Clinton fell ill at a memorial ceremony for the victims of the 9/11 attacks in New York and had been diagnosed with pneumonia.

Markets have generally assumed Clinton would win the presidency and have not properly priced the implications, both economic and for national security, should Donald Trump prevail.

Geopolitical concerns had already been inflamed by North Korea’s fifth and biggest nuclear test, ratcheting up a threat that its rivals and the United Nations have been powerless to contain.

North Korea has completed preparations for another nuclear test, South Korea’s Yonhap News Agency reported on Monday, citing South Korean government sources.

In commodities, oil prices extended Friday’s 4% fall in Asia after reports showed increasing oil drilling activity in the US, indicating that producers can operate profitably around current levels.

Brent crude was off 70c, or about 1.5%, at $47.31 a barrel, while US crude lost 79c to $45.09.

News Source TheGuardianNews

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