Asian shares dropped to their lowest levels this year due to concerns about higher US interest rates prolonging, causing unease in the market. The MSCI’s broadest index of Asia-Pacific shares outside of Japan fell by 1.6%, the lowest since November 2022. In addition, Japan’s Nikkei fell 1.8%, and Hong Kong’s Hang Seng Index dropped by 3%. The worry about an increase in rates continues as the debate over another rate hike this year persists. Currently, there is a 26% chance of a rate hike in November and a 45% possibility of an increase by December according to Fed funds futures traders.
The central bank of Australia has indicated that there might be a need for further tightening to control inflation. However, the Reserve Bank of Australia has held interest rates steady for the fourth month and has not demonstrated any urgency to raise them again. The Australian dollar also fell in response to this news. Attention remains on the Japanese yen as it nears the 150 per dollar mark. Speculation suggests that intervention from Japanese authorities might be necessary if the yen were to weaken below this threshold. Japanese Finance Minister Shunichi Suzuki has reiterated this warning against speculative moves that do not reflect economic fundamentals.
US crude oil prices fell as well, with US crude down 0.84% and Brent down 1.05% on the day. The dollar index, which measures the US currency against major rivals, rose to a 10-month peak. The yield on 10-year Treasury notes also rose to its highest level since October 2007. These increases were driven by an agreement to avert a partial US government shutdown, reducing demand for the debt. Finally, spot gold dropped by 0.5% and US gold futures fell by 0.56%.
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