Jerome Powell’s press conference performance, and particularly the Chair’s multiple references to this cycle being “different,” kneecapped Asian markets on Thursday.
Regional shares came under immense pressure earlier this week, when a red-hot read on inflation in Australia was insult to injury amid fragile risk sentiment tied both to uncertainty about the pace of upcoming Fed tightening and heightened geopolitical tensions. The situation deteriorated markedly following Powell’s Wednesday remarks.
A surge in New Zealand bond yields to the highest since 2018 (figure on the left, below) set the stage. Aussie yields touched the highest levels since late October, when a “vigilante attack” on the YCC note forced the RBA to abandon its yield cap.
Meanwhile, inflation in New Zealand jumped to a 31-year high, the latest data showed. At 5.9%, annual inflation is nowhere near the midpoint of the band (figure on the right, above). “Price increases were widespread with 10 out of 11 main groups in the CPI basket increasing in the year, with only the communications group decreasing,” Statistics New Zealand said.
“Bonds in Australia and New Zealand are crashing as trading gets under way Thursday,” Bloomberg’s Garfield Reynolds wrote, previewing equity losses. “That underscores just how rough the fallout is likely to be across Asia[n] markets following Powell’s latest hawkish turn.”
And it was rough. South Korean shares plunged again, extending recent losses in what some described as “panic selling.” It probably didn’t help that North Korea fired more missiles. I’ve lost count of how many Pyongyang provocations that makes in January. “Someone” is struggling to stay relevant.
The Kospi is now in a bear market (figure on the left, below). The LG Energy IPO is partially to blame for sucking the life out of the broader market in South Korea, but at this point, folks are scared. The Kosdaq dropped almost 4% to the lowest since November of 2020.
South Korean shares aren’t alone in staring down the bear. Mainland Chinese shares dropped 2% Thursday, pushing losses on the CSI 300 past the 20% threshold (figure on the right, above). Traders are apparently not keen to hold risk over the Lunar New Year holiday. Foreign investors dumped almost 15 billion yuan of mainland equities through the links, the most in 18 months.
The yuan, which had been appreciating virtually uninterrupted as a laundry list of fundamental drivers overwhelmed the deceleration in the Chinese economy, fell the most in seven months. H-shares were bludgeoned. Mega-cap Chinese tech slid almost 4% in Hong Kong.
This is a decidedly inopportune time for mainland equities to come under pressure. As Bloomberg noted, the Party wants to “maintain stability in its financial markets ahead of the annual Spring Festival and the Winter Olympics.” Between the stock selloff and the latest COVID wave, “stability” is proving elusive.
Australian shares reached correction territory on Thursday, while Japanese equities added to losses as well. Fed tightening cycles never end well. This one isn’t starting so good either.