Share markets tumbled and bonds rallied on Monday as fears the United States could be heading for recession sent investors rushing from risk assets while wagering interest rates will have to fall rapidly to rescue growth.
Japan's Nikkei shed a staggering 9 per cent to hit 8-month lows, entering bear market territory and marking its biggest three-session loss since the 2011 financial crisis.
That comes after the tech-heavy Nasdaq Composite notched a 10 per cent correction from a record high hit in early 2022 on Friday. Nasdaq futures were down 3.5 per cent on Monday.
The yen hit a 7-month peak.
QUOTES:
DANIEL TAN, PORTFOLIO MANAGER, GRASSHOPPER ASSET MANAGEMENT, SINGAPORE
"In our view, five Fed rate cuts by the end of 2024 seem unlikely. More plausible are two cuts - one in September and one in November - with a total of up to 75 basis points by the end of the year. This suggests potential opportunities to increase duration in upcoming months. Overall, we believe emerging market bonds will perform well by the end of the year in a gradually declining interest rate environment.
"Before the recent selloff in early August, we were cautious about chasing the global equities rally, which had been largely driven by the surge in global tech stocks. There may still be room for the recent sell-off in equities to continue, given the significant rally in technology stocks earlier this year and investors seeking to sell assets to cover losses."
GEORGE BOUBOURAS, HEAD OF RESEARCH, K2 ASSET MANAGEMENT, MELBOURNE
"Markets are clearly concerned with the recent weaker economic data. However, extrapolating last Fridays Payrolls data appears an overreaction as it is only one monthly reading. The rolling 3-month will be a better guide. It is clear the recent data momentum in the U.S. has slowed. The recent better core inflation numbers in the U.S. combined with some Fed commentary leads to market expectation of a September rate cut of 25 bps points. The days of ultra-low U.S. cash rates are well behind us.
Despite market volatility and some concern that the recent weaker economic data will continue, aggregate earnings and credit conditions are holding up reasonably well. Given the Fed is expected to begin rate cuts (Implied Futures) before the U.S. election (Nov. 5), that may be seen as problematic optically despite the rational that conditions warrant a rate cut. This may add to some pre-election volatility."
RYOTA ABE, ECONOMIST, SMBC, SINGAPORE
"I think USD/JPY will shift to 140-145 zone because of worse-than-expected NFP (U.S. non-farm payroll report) and the Middle East tensions. And the two reasons will likely weigh on Asian markets as market players will hesitate to take risks in this situation.
"Stronger yen will also weigh on Nikkei index as corporate margins will fall, as many corporates did not expect such a sharp and sudden rise of the Japanese yen at all."
MASAFUMI YAMAMOTO, CHIEF CURRENCY STRATEGIST, MIZUHO SECURITIES, TOKYO
"There's a risk that dollar-yen will fall further. The near term at the support will be 144.50, where the 90-week moving average is. If that is, I think the next target will be 140.
"But I would say that this the market pricing of a 50 basis rate cut by the Fed in the September meeting is too much. The U.S. economy is showing signs of slowdown, but it's not as bad as market is pricing in."
CHARU CHANANA, MARKET STRATEGIST, SAXO MARKETS, SINGAPORE
"There's been a dramatic shift in market narrative last week from concerns about elevated inflation to worries about growth and a potential recession.
"U.S. economic data remains in the driving seat now and the more the U.S. soft landing assumption gets questioned, the further pullback we can see in equity and carry strategies where positioning has also been stretched.
"However, markets have gone a bit too far expecting the Fed rate cuts and four rate cuts priced in for this year seems a stretch considering that the June dot plot showed only one cut and the structural inflation forces in play." --REUTERS