Asian markets react to dimming US rate hopes amid Taiwan quake
Asian markets experienced significant downturns on Wednesday as investors expressed growing skepticism regarding the likelihood of substantial interest rate cuts by the Federal Reserve this year. Concurrently, a massive earthquake striking Taiwan added to the prevailing sense of unease among traders.
For months, equities had been propelled higher by optimism surrounding potential monetary policy easing in response to inflation gradually approaching the Federal Reserve’s two percent target. However, the emergence of forecast-busting data across various indicators, encompassing inflation, factory activity, and employment, has dealt a substantial blow to these expectations, leading to a gradual erosion of anticipations for rate cuts.
Initial projections for six rate cuts in 2024 have progressively dwindled down to three, with concerns emerging that even fewer cuts may materialize. While two central bank officials reiterated expectations for three rate cuts this year, Cleveland President Loretta Mester cautioned that the decision-makers could potentially opt for fewer reductions, reflecting a close call in policy deliberations.
Moreover, San Francisco Federal Reserve Bank President Mary Daly underscored that while three cuts represented a reasonable baseline, the robustness of economic growth necessitated no immediate urgency for rate adjustments. Heightened optimism surrounding job openings, factory orders, and escalating oil prices further reinforced the notion that significant efforts would be required to mitigate inflationary pressures.
Despite the retreat observed on Wall Street, fueled partially by profit-taking following record-breaking rallies, Asian markets struggled to maintain stability. Tokyo experienced a decline of approximately one percent, with similar downward trends observed in Hong Kong, Sydney, Seoul, and Manila. Notably, Taipei grappled with the aftermath of a devastating 7.4-magnitude earthquake off Taiwan’s east coast, exacerbating regional uncertainties.
The seismic event prompted concerns about potential disruptions to key industries, particularly semiconductor production, as evidenced by declines in shares of chip giants such as TSMC and United Microelectronics Corporation. Gold prices concurrently surged to a new record high, reaching $2,288, buoyed by expectations of central bank rate cuts and geopolitical tensions in the Middle East, positioning gold as a sought-after safe-haven asset amid market turmoil.
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