Asian shares extend US selloff after Federal Reserve rate cut

Fed Chairman Powell fuelled speculation that there may not be more cuts to come, sending stocks lower.

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    Markets in the US turned volatile as Federal Reserve Chairman Jerome Powell signalled the US central bank is in no rush to continue cutting interest rates, unless warranted by data [File: Brendan McDermid/Reuters]
    Markets in the US turned volatile as Federal Reserve Chairman Jerome Powell signalled the US central bank is in no rush to continue cutting interest rates, unless warranted by data [File: Brendan McDermid/Reuters]

    A sell-off in U.S. stocks extended to Asia as markets opened after Chairman Jerome Powell dented hopes the Federal Reserve is poised to continue easing after delivering the first interest-rate cut in over a decade. Treasury yields ticked higher.

    Shares in Japan, Australian and South Korea saw moderate declines after U.S. stocks closed off their lows. U.S. futures slid. Powell said the quarter-point cut amounted to a “mid-term policy adjustment,” fueling speculation the central bank is not necessarily at the start of an easing cycle. The S&P 500 had fallen as much as 1.8% intraday after the Fed chairman said the Fed hasn’t ruled out further cuts. President Donald Trump said in a tweet “Powell let us down” with the size of the rate cut. The dollar held gains and oil declined.

    Fed fund futures showed less easing is now being priced in by markets that had been expecting almost three quarter-point cuts this year prior to the meeting. The hope for a cycle of cuts had pushed stocks to all-time highs and sent 10-year rates dipping below 2%. Markets turned volatile as Powell signaled the Fed is in no rush to continue with easing, unless warranted by data. The central bank earlier voted, with two officials dissenting, to cut rates as predicted by most investors and economists.

    “The market hadn’t heard what it wanted to hear, and let the Fed know how they felt,” Chris Weston, head of research at Pepperstone Group, said in a note. “The market now needs a couple of days to really digest this, and quite often in these meetings, the first move is not always the right move. We were hoping for clarity, and what we have been left with is more questions.”

    With the Fed out of the way, investors will continue to keep an eye on the ongoing earnings season as well as Friday’s U.S. jobs data and trade developments. U.S. and Chinese trade negotiators plan to meet again in early September, as the latest round of negotiations ended with few signs of concrete progress.
    Elsewhere, crude oil fell back under $58 a barrel after Powell’s comments. The pound was little changed after the U.K. announced funding to prepare for a no-deal Brexit.

    Here are some of the key events to watch as the week unfolds:

    •The Bank of England policy decision is due Thursday.

    •The U.S. July jobs report is due Friday.

    Here are the main moves in markets:

    Stocks

    •Japan’s Topix index fell 0.6% as of 9:06 a.m. in Tokyo.

    •Australia’s S&P/ASX 200 Index lost 0.4%.•South Korea’s Kospi index fell 0.5%.

    •Hong Kong’s Hang Seng Index contracts were down 1.3% earlier.

    •S&P 500 futures fell 0.3%. The S&P 500 Index fell 1.1%, the most since May 31.

    Currencies

    •The Japanese yen nudged lower to 108.85 per dollar.

    •The offshore yuan was at 6.9125 per dollar.

    •Bloomberg Dollar Spot Index was steady after gaining 0.4%.

    •The euro held a 0.7% slide to trade at $1.1068.

    •The British pound was little changed at $1.2151, down 0.1%.

    Bonds

    •The yield on 10-year Treasuries rose two basis points to 2.03%. The two-year rate added one basis point to 1.88%.

    •Australia’s 10-year bond yield rose 1 basis point to 1.2%.

    Commodities

    •West Texas Intermediate crude fell 1.8% at $57.52 a barrel.

    •Gold fell 0.2% to $1,410.72 an ounce, adding to a 1.2% slide.

    SOURCE: Bloomberg