Hawkish Fed seen as bad news for Asia stock and currency bulls
2 min read 03 Nov 2022, 08:36 AM ISTA more hawkish-than-expected Jerome Powell sent US stocks spiraling lower Wednesday and analysts expect more of the same for Asia Thursday. Higher-for-longer US interest rates are likely to impact growth in the region, weigh on stocks and put further pressure on currencies thanks to a strengthening dollar.
PremiumA more hawkish-than-expected Jerome Powell sent US stocks spiraling lower Wednesday and analysts expect more of the same for Asia Thursday. Higher-for-longer US interest rates are likely to impact growth in the region, weigh on stocks and put further pressure on currencies thanks to a strengthening dollar.
Here’s a selection of comments from analysts and strategists:
Lower Asia Growth
The Fed hike is likely to be followed with similar hikes by Asian central banks which would result in an increase in dollar funding costs and a rise in local borrowing costs in Asian markets, according to Chandan Kumar GV, head of products at Indxx, a global provider of indexing solutions for ETFs. Financial conditions are expected to be tightened across Asia which would result in an overall slowdown of economic growth.
Asian currencies are likely to depreciate further when compared to the US dollar as investors are primed to flock to the safe haven after concerning inflation data across the globe raised the prospect of central banks continuing with interest rate hikes even at the expense of growth.
Self-Defeating Rallies
“Any equity or junk bond rally on a pre-emptive pivot is still counterproductive, given such a risk-on move would mechanically ease financial conditions, undermining the tightening we’ve seen by pushing up longer-term inflation expectations, thereby making it self-defeating over the medium term," said Chamath De Silva, a senior portfolio manager for Sydney-based BetaShares Holdings.
Later Dollar Peak
There’s now a risk the dollar peak will be later in 2023, which “would in turn delay the start of the recovery in the Aussie, kiwi, euro and pound," said Kim Mundy, a senior currency strategist at Commonwealth Bank of Australia.
China Optimism
Asian markets may get some spillover effect from Wall Street, however, resilient moves may be expected as Fed’s decision was widely expected, according to Tina Teng, an analyst with CMC Markets. The two-day rebound in Chinese stock markets could also offer optimism amid widened bets on a Covid-Zero policy exit by Beijing.
Australian Valuations
Australian stocks about 8.6% below the pandemic peak is “intuitively hard to justify" with inflation rising towards 8%, growth softening and house prices likely to drop 20% peak-to-trough, said Scott Rundell, chief investment officer at Mutual Ltd. “If I had woken from a coma today and someone gave me those figures, pretty sure I would expect the ASX 200 to be much lower than it currently is."
This story has been published from a wire agency feed without modifications to the text.
