Asian benchmarks were broadly lower on Monday morning as new fears about the U.S. Federal Reserve’s plans to cut interest rates shook the global markets. On Friday, the U.S. non-farm payroll report showed a growth of 224,000 positions in June, crushing expectations of a growth of 160,000, and calling into question whether the U.S. economy warrants an interest rate cut in its current position. According to reports by Reuters, June’s NFP numbers were the strongest of 2019 to date, suggesting that the U.S. economy isn’t as weak as originally believed.
South Korea’s Kospi was down 1.86 percent as of 10:06 a.m. HK/SIN. Hong Kong’s Hang Seng Index slumped 1.38 percent, while China’s benchmarks, the Shanghai Composite and the Shenzhen Composite, were down 1.33 percent and 1.20 percent respectively. Even Australia’s ASX 200, often immune to the trends that plague mainland Asian markets, was down 0.90 percent in early Asian trade.
Prior to the non-farm payroll report on Friday, expectations for an interest rate cut this month were 33 basis points, but expectations fell to 27 basis points after the report. Federal Reserve Chairman Jerome Powell will address Congress later this week and is expected to provide clues as to how the Fed will react to the NFP report on the policy level.
According to MarketWatch, reversing its course and not cutting interest rates as analysts expect would be devastating for the markets, causing as much as drop of up to 500 points for the Dow Jones Industrial Average, and other indexes may face troubles as well as they’ve already priced in the expected rate cut.
Still, Chairman Powell has always maintained that policy will be dictated by the facts on the ground, not by pressure from the president, the government or the American people. And so, traders remain cautious as they await Powell’s address this week and the Fed’s policy meeting at the end of the month; and the markets are taking note of this caution