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Asian stocks plunge after Trump US Fed comment

Asian stocks plunge after Trump US Fed comment

Business Desk Tokyo’s benchmark index closed down nearly four percent on Thursday, as US President Donald Trump said the Federal Reserve had “gone crazy” with plans for higher interest rates. The Nikkei 225 index plunged 3.89 percent, or 915.18 points, to end at 22,590.86, while the broader Topix index shed 3.52 percent, or 62.00 points, to 1,701.86. Chinese stock markets also plunged to their lowest levels in four years on Thursday following a global rout. The benchmark Shanghai Composite Index dropped 5.22 percent, or 142.38 points, to 2,583.46, marking the lowest level since November 2014. The Shenzhen Composite Index, which tracks stocks on China’s second exchange, plummeted 6.45 percent, or 89.15 points, to 1,293.90, the lowest point since September 2014. In a phone interview with Fox News, Trump said, “The Fed is going wild and I mean I don’t know what their problem is but they’re raising interest rates and it’s ridiculous.” “The Fed is going loco and there’s no reason for them to do it and I’m not happy about it,” he added. US shares plunged on Wednesday as worries about surging US interest rates and the impact of trade disputes prompted a broad-based sell-off that wiped more than three percent from major indices. In the US, Wall Street stocks plunged Wednesday, with major indices losing more than three percent in a selloff prompted by the sudden jump in US interest rates. When all the dust settled after a brutal session, the Dow Jones Industrial Average had lost 3.2 percent or 830 points to finish at 25,498.74, in the biggest fall since February. The broad-based S&P 500 slumped 3.3 percent to end at 2,785.68, while the tech-rich Nasdaq Composite Index plummeted 4.1 percent to finish the session at 7,422.05. The Nasdaq decline was its worst in percentage terms since the surprise Brexit vote in June 2016. Losses were fairly broad-based, with tech companies Amazon and Microsoft 6.2 percent and 5.4 percent respectfully. Apple, Boeing, Nike and Visa all tumbled more than four percent, while Caterpillar and 3M lost almost four percent. US stocks notched solid gains in the third quarter as investors brushed aside worries about trade wars and focused on strong corporate earnings and solid US economic data. But stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases. “It’s shifting the tectonic plates,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors. “Equity markets have enjoyed capital flows because bond yields have been so paltry. As rates move back towards fair value, capital is going to flow eventually out of equity risk taking.” The turmoil came a day after the International Monetary Fund slashed its global growth forecast on worries about trade wars and weakness in emerging markets. Tom Cahill of Ventura Wealth Management said investors were also unnerved by remarks from luxury company LVMH of a crackdown on some goods in China amid the country’s bitter dispute with the United States. “Two weeks ago this kind of news would not have affected the market,” he said. “But since we are now in a corrective phase, any bad news accelerates the decline.” LVMH’s travails also raised worries about whether the prospects of luxury brands are fading as the global economic outlook weakens. Among American brands, Tiffany slumped 10.2 percent and Michael Kors Holdings fell 7.1 percent. US airlines were another big loser, with American Airlines sliding 5.8 percent and Southwest Airlines 3.6 percent as a major US hurricane caused flight cancelations in Florida. A stock market downturn hitting voters’ retirement savings would be inopportune for Trump and the Republican party ahead of U.S. midterm elections on November 6. The S&P 500 index fell 10 percent in early February from a high the previous month, raising fears that a decade-old bull market was ending. However, fueled by the deep corporate tax cuts passed by the Trump administration last year and an expanding economy, Wall Street deftly recovered. It racked up a 2018 gain of nearly 10 percent in late September, until soaring 10-year U.S. Treasury bond yields and trade policy related worries sent investors fleeing for safety. “When interest rates go up it can throw a cold towel on an overheating economy, and that’s what it looks like is happening now,” said Sandy Villere, a portfolio manager at Villere & Co in New Orleans. U.S. stocks are widely considered to be in the longest ever bull market, which started in March 2009, when investors grappled with the global financial crisis that had vaporized over half of the U.S. stock market’s value. Since then, the S&P500 index has more than quadrupled, and many investors have been debating when, not if, the run-up in stock prices would end. “The market has been on a 10-year bull run and we have seldom seen a 10 percent correction during that time. Every time we get around that number, markets come rallying back. What’s different now is that the 10-year bond yield is much higher. I think we’re getting an overdue correction in the market,” said Trip Miller, managing partner at Gullane Capital Partners in Memphis. Whether the S&P 500 index slides into a prolonged downturn may hinge on what companies say about their outlooks when they report their quarterly results in coming weeks. Analysts expect aggregate S&P 500 earnings per share to surge 21 percent, year over year, in the September quarter and 20 percent in the December quarter. But in 2019, deep corporate tax cuts that started in 2018 will be a year old, and companies are unlikely to repeat the same strong earnings growth they saw this year. Earnings repatriated from abroad this year as part of the tax overhaul may lead to fewer big increases in stock buybacks next year. Executives on quarterly earnings call will also provide details about how they expect Trump’s trade conflict with China to affect their businesses. September consumer price data due on Thursday might fuel worries that the Fed may raise interest rates more aggressively than previously thought. “The market is digesting the potential that rates moving upwards eventually seep into the real economy in the form of mortgage rates, auto rates, student lending rates,” said Mona Mahajan, U.S. investment strategist at Allianz Global Investors in New York. “What we’re seeing here is the market positioning for potential lower growth going forward.” European stocks slumped to a 21-month low on Thursday after Wall Street’s worst losses in eight months triggered a surge of global selling that also hit Asia and emerging markets. Losses in London, Paris and Milan were at nearly 2 percent ahead of what looked set to be another early dive from Wall Street, although it wasn’t quite as dramatic as the overnight session in Asia. MSCI’s broadest index of Asian shares not including Japan ended down 3.6 percent, having struck its lowest level since March 2017. China’s main indexes had slumped over 5 percent. It meant MSCI’s 24-country emerging market index was having its worst day since early 2016, after Wall Street’s swoon had given the 47-country world index equivalent .WORLD its worst day since February. “Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty,” summed up analysts at ANZ. The sell-off, which came as the head of the International Monetary Fund, Christine Lagarde, said stock market valuations have been “extremely high”, erased hundreds of billions of dollars of global wealth. Europe’s traders retreated to the safety of German and other higher-rated government bonds. Italian bonds aren’t on that list though, and though they squeezed through a 6.5 billion euro debt sale, they saw more selling amid ongoing concern about the country’s financial health. “It remains to be seen whether the accelerating equity plunge is a healthy correction or the tip of the iceberg,” Commerzbank analysts said in a note. Sinking global shares had raised the stakes for U.S. inflation figures which ended up coming in relatively tame. High inflation would only stoke speculation of more aggressive rate hikes from the Federal Reserve - one of the things that has spooked markets. On Wall Street, the S&P500’s sharpest one-day fall since February on Tuesday had wiped out around $850 billion as the S&P toppled over 3 percent and the Nasdaq’s high-flying tech shares tumbled even more on fears of slowing demand. The bloodletting attracted the attention of U.S. President Donald Trump, who pointed an accusing finger at the Fed for raising interest rates. “I really disagree with what the Fed is doing,” Trump told reporters before a political rally in Pennsylvania. “I think the Fed has gone crazy”. Hawkish commentary from Fed policymakers triggered the sell- off in Treasuries last week and sent long-term yields to their highest in seven years. The surge made stocks look less attractive compared with bonds while also threatening to curb economic activity and profits. “The rise in Treasury yields has been the primary catalyst for the sell-off in equities, since higher yields suggest a lower present value of future dividend streams, assuming an unchanged economic outlook,” said Steven Friedman, senior economist at BNP Paribas Asset Management. “It is also possible that equity investors are growing concerned that the Federal Reserve’s projected rate path will choke off the expansion.” (Inputs taken from AFP, Reuters)

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