SINGAPORE, Aug 17 (Reuters) – Asian shares fell to nine-month lows on Thursday, while the dollar hit a two-month high on worries that China’s sluggish economic recovery and the Federal Reserve may raise interest rates further.
MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) fell to 495.03, its lowest since Nov. 29. It was last down 1.14% at 497.11, with the index down 8% in August, its worst monthly performance. September.
Losses were broad across the Asia Pacific on Thursday, with Japan’s Nikkei (.N225) and Australia’s S&P/ASX 200 index (.AXJO) down 1%.
China’s blue-chip CSI 300 index (.CSI300) was 0.45% lower, while Hong Kong’s Hang Seng Index (.HSI) fell 1.7% to a nine-month low.
While investors have so far been unimpressed by policymakers’ moves, China stocks have been subdued as a series of economic data exposed a stifling post-pandemic recovery.
„Investors looking for more aggressive support from policymakers amid softer activity have been disappointed as recent incremental measures have not been enough to restore confidence,” said NAB’s economist Taylor Nugent.
Adding to the troubling landscape for the world’s second largest economy is a deepening property sector crisis. A leading Chinese mutual fund company has been plunged into gloom after failing to pay for investment products and plunging house prices.
Overnight, Wall Street showed officials split on the need for more interest rate hikes minutes after the central bank’s July meeting.
Even as „most” policymakers continue to prioritize the fight against inflation, „some participants” cited the risks of pushing rates too far for the economy.
The US Federal Reserve raised interest rates by 25 basis points at its July meeting in June. Federal Reserve Chairman Jerome Powell said at the time that the economy would need to slow further and the labor market weaken for inflation to „credibly” pull back the Fed’s 2% target.
Comments from officials, including hawks, indicated a preference for a pause again in September, but left the door open for further hikes at December meetings, ING economists said in a note.
„We don’t think the Fed will actually move interest rates in September, but we don’t think it will follow through with that final forecast hike,” they said, pointing out that further rate hikes could raise the chances of a recession.
Markets are pricing in an 86% chance of the Fed standing pat next month, the CME FedWatch tool showed, with a 36% chance of a hike at its November meeting.
The benchmark 10-year yield hit 4.288%, the highest since Oct. 21, and a 16-year high of 4.338%.
Rising yields lifted the dollar, which measures the U.S. currency against six rivals, to hit a two-month high of 103.58 as investors sought safety.
The Japanese yen fell 0.07% to 146.42 per dollar, a new nine-month low, as traders eyed intervention talks by Japanese authorities. Finance Minister Shunichi Suzuki said on Tuesday that authorities were not targeting absolute currency levels for intervention.
Concerns over China and the path of US interest rates weighed on the commodities market, with oil prices falling for a fourth straight session. U.S. crude fell 0.34% to $79.11 a barrel, while Brent was down 0.26% to $83.23.
Report by Ankur Banerjee; Editing by Muralikumar Anantharaman
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