Dovish Fed sparks slump in Asian stocks

Tokyo/New York — Asian equities and US futures fell on Thursday, hurt by the US Federal Reserve’s cautious view of the economy, tensions with China and new clusters of coronavirus infections.

MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.79%, the biggest daily decline in five weeks. US stock futures were down 0.55%.

Australian stocks dropped 0.91% due to concern that ties with China will worsen after a report that Australian regulators will reject acquisitions by a Chinese company.

Shares in China fell 1.28% due to dwindling expectations for additional monetary easing after the People’s Bank of China kept a benchmark lending rate unchanged on Thursday.

Japanese stocks slid 1.06%. South Korean stocks tumbled 3.26%, the biggest daily drop since June 15, amid a spike in coronavirus cases in Seoul.

Euro Stoxx 50 futures were down 1.36%, German DAX futures fell 1.31%, and FTSE futures was off 1.27%.

Market sentiment had been bullish up until Fed policymakers’ comments highlighted uncertainties over the US recovery, with the S&P 500 and the Nasdaq hitting all-time highs driven largely by Apple.

The iPhone maker’s shares rose 1.4% to make the first publicly listed US company reach $2-trillion in market capitalisation, while strong results from retailers Target and Lowe’s also lifted sentiment.

The positive mood quickly faded, however, after several Fed members said additional easing may be needed because a rebound in employment was already slowing.

The downbeat tone spilt over into Asia, which weighed on equities and oil futures but pushed gold prices higher due to economic uncertainty.

“It was a decent day for banks, Apple and Nike but everything else was in the reverse after the Fed said economic conditions will be difficult for a while,” said Jamie Cox, managing partner at Harris Financial Group.

“We’ve seen some good numbers out of retail but there’s uncertainty that these companies won’t replicate those earnings without some stimulus.”

Minutes from the Fed’s July meeting showed the swift rebound in employment seen in May and June had likely slowed and that additional “substantial improvement” in the labour market would hinge on a “broad and sustained” reopening of business activity.

The readout on Fed discussions provides hints to further action the US central bank could take in September. No change in interest rate policy is expected until end-2021.

The Dow Jones Industrial Average fell 0.31%, the S&P 500 lost 0.44% and the Nasdaq Composite dropped 0.57%.

Spot gold rose 0.82% to $1,945.43/oz on Thursday, recovering from a 3.6% tumble on Wednesday as the cautious mood boosted demand for the safe-haven asset.

The yield on benchmark 10-year treasury notes fell slightly to 0.6623%, while those on the 20-year bond also fell to 1.1725%.

Some bond investors were also disappointed after the Fed minutes showed central bankers downplayed the chance of capping bond yields.

The dollar index, which reflects the greenback’s value against six leading trading currencies, steadied at 92.983.

Oil prices edged lower over lingering concerns of weak global fuel demand after data showed that US crude stockpiles fell 1.6-million barrels last week.

Brent crude futures fell 0.77% to $45.02 a barrel. US crude futures slid by 0.89% to $42.55 a barrel

Reuters