[ad_1]
SYDNEY: Asia’s major stock indexes fell sharply on Monday as concerns about a possible US recession triggered massive risk aversion and bets that interest rates must fall sharply and quickly to support economic growth.
Investors were flat on Friday’s close, with Nasdaq futures down 1.28% and S&P 500 futures down 0.79%. Nikkei futures were trading at 34,665, more than a thousand points below the spot close of 35,909.
Treasury futures fell 5 basis points, but that followed a sharp rally on Friday that saw yields fall 18 basis points to their lowest level since November.
The two-year Treasury yield fell 50 basis points last week and could soon fall below the 10-year yield, turning the curve positive, a condition that has signaled recessions in the past.
The worryingly weak July nonfarm payrolls report has markets pricing in a near 70% chance that the Fed will not only cut rates in September, but will do so by 50 basis points. Futures markets are implying a 155 basis point rate cut this year and another 155 basis point cut in 2025.
“We raise our odds of a recession within 12 months by 10 percentage points to 25%,” Goldman Sachs analysts said in a note, but they believe the danger is limited because the Federal Reserve has limited room to ease policy.
Goldman Sachs currently expects interest rates to be cut by 25 basis points in September, November and December respectively.
They added: “Our forecast assumes that job growth will recover in August and that the FOMC will judge that a 25 basis point rate cut is sufficient to address any downside risk. If our forecast is wrong and the August jobs report is as weak as July, a 50 basis point rate cut in September is likely.”
Investors will get a glimpse into services sector employment from the ISM non-manufacturing survey due later on Monday, with analysts hoping the index will rebound to 51.0 after unexpectedly slipping to 48.8 in June.
A sharp drop in U.S. Treasury yields also overshadowed the dollar’s usual safe-haven appeal and dragged sterling down about 1% on Friday.
In early trading on Monday, USD/JPY fell 0.2% to 146.19, while EUR/USD was steady at 1.0907.
The Swiss franc was the main beneficiary of the risk-off wave, with USD/CHF trading close to a six-month low of 0.8586 franc.
“The shift in expectations for U.S. rate differentials has outstripped the deterioration in risk sentiment,” said Jonas Goltman, deputy chief markets economist at Capital Economics.
“If recession talk does materialize, we would expect this to change and the dollar to rebound as safe-haven demand becomes the dominant driver in currency markets.”
Investors also increased bets that other major central banks will follow the Fed in more aggressive easing, with the European Central Bank now expected to cut interest rates by 67 basis points before Christmas.
In commodity markets, gold prices were steady at $2,442 an ounce, supported by falling global yields.
Oil prices have rebounded on fears of a widening conflict in the Middle East, but concerns about demand sent them to an eight-month low last week.
Brent crude rose 44 cents to $77.24 a barrel, while U.S. crude rose 40 cents to $73.92 a barrel.
[ad_2]
Source link
