Unease lingers in Asia markets as Trump criticises Fed
Stocks in Japan staged a tepid recovery on Wednesday while other markets in Asia that were trading retreated under the weight of concerns about political and economic uncertainty in the US.
After plummeting almost 5 per cent on Tuesday, the benchmark Topix closed up 1.1 per cent following a choppy session, but volumes were weak, said dealers, and unlikely to pick up much over the year’s remaining two trading days. A strengthening yen also damped sentiment.
Barring a stunning rally in Tokyo, Japanese equities are poised to end the year in bear market territory, and market strategists are warning of an “unconstructive” start to 2019.
China’s benchmark CSI 300 index slid 0.5 per cent and in South Korea the Kospi shed 1.3 per cent on Wednesday. S&P 500 futures were down 0.5 per cent, pointing to a negative start when Wall Street reopens later in the global day.
Turbulence in global markets in the final week of 2018 has been linked to US President Donald Trump’s attack on the Federal Reserve along with jarring comments about market liquidity made by US Treasury secretary Steven Mnuchin.
In a Christmas Day media briefing at the Oval Office, Mr Trump accused the Fed of increasing rates too quickly, raising concerns of a dispute between the White House and the central bank.
Markets also reacted poorly to a highly unusual effort the previous day by Mr Mnuchin to reassure about liquidity at Wall Street banks, which appeared to backfire. The S&P 500 finished Monday’s holiday-shortened session down 2.7 per cent at 2,351, marking the worst Christmas Eve trading day on record.
Mr Mnuchin said on Sunday that the heads of the country’s biggest banks had confirmed they had “ample liquidity for lending to consumer, business markets, and all other market operations” — an issue that had not been a widespread point of concern.
When Mr Trump was asked at the media briefing whether he had confidence in Mr Mnuchin, the president replied: “Yes I do. Very talented guy, very smart person.” Questioned about the Fed chairman, Mr Trump said: “Well, we’ll see. But they [the Fed] are raising interest rates too fast, that’s my opinion.”
Markets in Hong Kong and Australia remained shut for the Boxing Day holiday, while the first test of market reaction to Mr Trump’s latest comments in Europe and London will come on Thursday when markets there reopen.
Despite Wednesday’s rebound, Japan’s Topix has fallen over 20 per cent since the start of 2018.
The Nikkei 225 Average, which remains the touchstone for Japanese retail investor sentiment towards their own market and has fallen by almost 15 per cent since the start of December alone, managed a 0.9 per cent rebound. But at its close of 19,327 points it remained below the 20,000-point line once thought to offer a solid level of support, with brokers unable to identify any immediate trigger for a sustained recovery.
In spite of attempts by the Bank of Japan to reduce the risk premium in Japanese equities by purchasing ¥6tn ($54bn) of exchange traded funds every year, the Japanese stock market has lost most traces of the “Abenomics” rally that propelled it through successive years of gains between 2012 and 2017.
The political tension surrounding the US government shutdown since Friday night has also been weighing on sentiment, while a further drag is what appears to be at new, higher trading range for the yen. The Japanese currency rose strongly on December 25 and mounted what analysts said could be a series of challenges to the ¥110 level over the next few weeks.
Shusuke Yamada, Japan equities and currency strategist at Bank of America Merrill Lynch, has a ¥105 target for the yen next year but warned the dollar could sink lower than that as the market absorbed expectations surrounding the Fed’s tightening cycle, the prevailing price of crude, and the already low currency hedging ratio of Japanese institutional investors.