Asian stock markets experienced widespread declines on Monday, as investor sentiment soured following stronger-than-expected US economic data, prompting a reevaluation of future interest rate cuts by the Federal Reserve.
Equity markets across Australia, Hong Kong, mainland China, India, and South Korea all saw losses after the release of the US payrolls report on Friday, which revealed an addition of 256,000 jobs in December, well above expectations. This surge in hiring has raised concerns that the Federal Reserve may delay or scale back its anticipated rate cuts, leading traders to reduce their bets on looser monetary policy.
The US dollar surged to its highest level in more than two years, buoyed by expectations of a robust US economy. A stronger dollar typically drains capital from other markets, particularly in Asia, as investors seek higher yields in the US.
“People are surprised by the economic strength in the US,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas. “With US interest rates so high, there will be a liquidity drain in Asia, with capital flowing to the US or remaining there.”
In Australia, the S&P/ASX 200 index dropped 1.3%, while South Korea’s Kospi fell 1.1%. India’s Sensex index declined by 0.8%. The Japanese market was closed for a holiday.
“Emerging market equities traditionally perform better when US interest rates are lower,” said Sunil Tirumalai, head of Asian equity strategy at UBS. “In fact, they are more sensitive to US rates than US equities themselves.”
Hong Kong’s Hang Seng Index retreated by 1.4%, while mainland China’s CSI 300 index saw a decline of 0.5%.
Despite the broad downturn, mainland Chinese equities have shown some resilience, according to Lui, who noted that domestic investors continue to shift funds from low-yield savings accounts into the equity market. However, the Chinese stock market has been on a downward trajectory, falling 17% since its peak on October 8 last year. The decline follows fading expectations for significant economic stimulus from Beijing, compounded by concerns over the potential economic impact of former President Donald Trump’s second term.
“Some stimulus measures have been a positive surprise,” Tirumalai commented, acknowledging that while China remains in a “bear market,” recent actions, such as the extension of the trade-in scheme for consumer goods, have come sooner than anticipated.
On the commodities front, oil prices surged to a four-month high after the US imposed sweeping new sanctions on Russian oil on Friday. Brent crude, the international benchmark, rose by 1.6% to $81 per barrel, while West Texas Intermediate, the US benchmark, gained 1.7%, reaching $77.90 per barrel.
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