Asia stocks tumble after US Fed’s warning; STI opens down 1.1%

NEW YORK (BLOOMBERG) – Asian stocks sank along with US equity futures on Monday (Aug 29) after hawkish rhetoric from Federal Reserve chair Jerome Powell sparked sharp drops on Wall Street last Friday and pushed up the US dollar.

Japan’s Nikkei index sank 2.37 per cent, while Australia’s S&P/ASX 200 index lost 1.86 per cent and South Korea’s Kospi dropped 2.3 per cent.

Singapore’s Straits Times Index opened down 1.14 per cent.

Contracts for the tech-heavy Nasdaq 100 and the S&P 500 fell more than 1 per cent.

A gauge of the United States dollar pushed towards a more than one-month high, with commodity-linked currencies, the yen, the pound and the offshore renminbi all under some pressure.

Bonds sold off, taking the US two-year Treasury yield to the highest since 2007. A deepening inversion of the US yield curve underscored bond market expectations of a recession.

Mr Powell in his address on Friday at the Fed’s Jackson Hole annual retreat warned that rising interest rates will cause “some pain” to the US economy, saying higher interest rates likely will persist “for some time”.

Those comments contrast with market bets for reductions in borrowing costs next year as growth slows. The focus for investor angst is the equities market, further undoing a bounce in global shares from the bear market lows of mid-June.

Mr Powell signalled that “once they get to whatever the final hike is, they are going to stay there for a while”, Charles Schwab & Co chief investment strategist Liz Ann Sonders said on Bloomberg Television. “The market had trouble digesting that.”

Bitcoin broke below the US$20,000 level that some view as a marker of a deeper slide in investor sentiment. Gold and crude oil wavered.

Futures for Hong Kong’s bourse edged up earlier after a gauge of US-listed Chinese shares weathered much of Friday’s equity market rout.

That may reflect optimism about a preliminary deal between Beijing and Washington to ease a dispute over reviewing audits of Chinese firms. An agreement is needed to avert the delisting of about 200 Chinese companies from US exchanges.