Asian markets turned lower Friday as investors took their foot off the pedal at the end of a broadly positive week, while the dollar strengthened after the Federal Reserve flagged more interest rate hikes down the line.
Energy firms were among the biggest losers as oil prices fell into a bear market after dropping 20 per cent from their recent highs.
The US midterms provided a much-needed fillip to equities as traders bet that the expected gridlock on Capitol Hill would keep Donald Trump from pushing through measures that would likely stoke inflation and in turn rate hikes.
Rising US borrowing costs have been one of the major issues weighing on global equities this year.
However, after its latest policy meeting Thursday the Fed repeated that it expected ‘further gradual increases’ in the key interest rate as the economy goes from strength to strength.
The central bank said growth ‘has been rising at a strong rate’, jobs were picking up, unemployment dropping and household spending ‘growing strongly’.
While it did not lift rates, observers said another move upwards next month was very likely.
US markets closed mostly lower, with Asian equities following suit.
Tokyo ended down 1.1 per cent. Hong Kong shed 2.4 per cent and Shanghai finished 1.4 per cent lower after data showed another drop in Chinese factory prices, while tech firms were hit by a series of weak earnings results from mainland firms.
‘China producer’s inflation is cooling as manufacturing activity is receding damping price pressures on raw commodities, yet another casualty of US-China trade wars,’ said Stephen Innes, head of Asia-Pacific trade at OANDA. ‘The decline in the PPI underscores increased economic pressures.’
Sydney eased 0.1 per cent, Singapore sank 0.6 per cent and Seoul was off 0.3 per cent. Taipei and Jakarta were both down more than one per cent.
The dollar, which turned lower after the election results, picked up against most other currencies in New York and continued that trend in Asia, with emerging market and other higher-yielding units sharply lower.
‘There is a sense that for now US-related incentives have all come out. But of course, the US-China summit talks at the end of the month require attention,’ Mizuho Securities said in a note.
‘We expect the market’s attention for this month will go to Europe,’ with the region’s overall growth, Italian fiscal conditions, and Brexit talks in focus, Mizuho added.
The Mexican peso plunged more than one per cent after president-elect Andres Manuel Lopez Obrador introduced plans to slash the fees banks can charge clients. The leftist has worried the business sector with rhetoric about overhauling Mexico’s economic model when he takes office on December 1.
The pound is attracting attention as a deadline approaches for Britain and the EU to reach a post-Brexit deal, with speculation the two sides are close to an agreement.
Energy firms were deep in negative territory after another sharp sell-off in oil Thursday, which came on the back of data showing a surge in US stockpiles.
Crude has taken a battering since hitting four-year highs last month as rising production, the brewing China-US trade war and easing concerns about the impact of sanctions on Iran. Both main oil contracts were down Friday.
‘Certainly, the waivers on US sanctions for Iranian crude have really accelerated the decline from last month and sensitivity to those issues have been high in recent times,’ Daniel Hynes, a senior strategist at Australia & New Zealand Banking Group, said.
The increases in US stockpiles ‘add to rising concerns of output’. He added that traders will be following a weekend meeting between OPEC and Russia.
Among the worst-hit energy firms were CNOOC, which lost four per cent in Hong Kong, while Tokyo-listed Index sank 3.9 per cent and Australia’s Woodside Petroleum dropped 1.3 per cent.
European stocks retreated at the open Friday as a midweek rally faded further. London and Paris both slid 0.6 per cent, while Frankfurt fell 0.3 per cent in early trading.
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