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.
9 thoughts on “Panic Selling Grips Asia As Stocks, Bonds Plunge On Hawkish Powell”
Couple of experienced hedgies say margin calls in Far East 20x normal they think some fund got carried out SoftBank did a big dive
Just wanted to add a comment to the Powell presser article.
“I think there’s quite a bit of room to raise interest rates without hurting the labor market,”
Low rates haven’t actually benefited labor so I see his point here. There are still somewhere in the range of 11M unemployed, that has been the status quo for a while now. Low rates and easy liquidity haven’t driven employers to try to do anything about it. Instead, they’ve been leveraging the cash for stock buybacks, which is not the ideal use for this assistance. Stocks go up, employment goes down, and consumers aren’t benefited at all.
US companies will resist paying more than $15/hour for unskilled labor, if at all plausible. Automation is occurring at a rapid pace. For example, Vail Resorts to going thru a major shift to reducing their human overhead and using screeners/online providers. All those $15/hour liftee jobs are getting replaced by an overhead scanner that reads the imbedded microchip in a ski pass. Have a problem with a ski pass? Resolve online- good luck getting to a live person. I won’t be shocked when I see a robotic controlled groomer in the near future.
This is just one industry. When I go for my occasional Egg McMuffin- I prefer to order on screen. How that order could be incorrectly filled is beyond me, but my chances of actually getting an Egg McMuffin increase significantly if I avoid a human at point of order.
I have no idea what happens to our pool of unskilled laborers. But one way or another, they will not be making $15/hour.
“Logistics Giants Are Turning to Remote-Run Forklifts After Labor Crunch” — https://www.bloomberg.com/news/articles/2022-01-19/logistics-giants-turn-to-remote-run-forklifts-amid-labor-crunch
I suspect there are several silver linings about to appear amid all these clouds, JOLTS in particular. The quits rate has been at series-high for months; there’s no historical precedent at all with which to evaluate it. But it is a confidence-based measure and confidence just evaporated over the last N weeks. Nobody wants to be the last guy to quit when the music stops in the job market. Similarly, I suspect the job openings data has been elevated for months as companies attempted to overstock on hiring for the same reasons they attempted to over-order inventory. Now companies are hearing nothing but recession and global gloom; all talk of a post-Covid demand surge has literally disappeared from the media. Hence, I suspect both the quits rate and the job openings data will plunge, not dip, when the January data is released Mar 9. If so, it should result in a reassessment of the prospects of a wage-price spiral. By then, another six weeks of global fear will likely have hit other leading indicators.
Whether it’s JOLTS or some other data point that runs counter to the widespread “inflationary witch” sentiment, this market seems heading for a “She turned me into a newt!” moment.
Maybe I was dropped on my head by an economist at an impressionable age, but it seems that if the FED tries to peddle two or three trillion of its portfolio holdings there will need to be many buyers. From sheer volume one would think prices will fall and rates will rise. Maybe the QT selloff will obviate the need for many of the “planned” Fed hikes.
Possibly the US banks would purchase instead of borrowing T’s from the overseas lending program? I recently saw (but can not verify) the overnight lending was at $1.7T.
Overnight, not overseas
What sleight of hand giveth, sleight of hand taketh away:
“By the Fed letting the bonds it’s purchased reach maturity and run off its balance sheet. It effectively created the money it used to buy the bonds out of thin air. Then the Treasury Department “pays” the Fed at the maturity of the bond by subtracting the sum from the cash balance it keeps on deposit with the Fed, effectively making the money disappear.” — https://www.bloomberg.com/news/articles/2022-01-05/for-fed-taper-rates-then-quantitative-tightening-quicktake
How do you get rid of excess liquidity? Destroy the ‘wealth’ it created.
Is there a moral to this story? Yup. When somebody hands you free money/bitcoin spend it before they come to take it back.
No need to worry about QT. Remember when, in June 2017, Janet said QT would run so quietly in the background that it be about as exciting as “watching paint dry”? Me neither, but, @H has mentioned it a few times if I recall correctly. What me worry? Nothing to see hear! Please step behind the yellow tape, Sir! ? In fact, if I’m not mistaken @H has a favorite chart just for this topic. ?
P.S. Mister you don’t sound so lucky. Maybe you should get that looked at.