(Reuters) – Share markets tumbled and bonds rallied in Asia on Monday as fears the United States could be heading for recession sent investors rushing from risk assets while wagering interest rates will have to fall rapidly to rescue growth.
Japan’s Nikkei shed a staggering 7% to hit seven-month lows, entering bear market territory and marking its biggest three-session loss since the 2011 financial crisis. That comes after the tech-heavy Nasdaq Composite notched a 10% correction from a record high hit in early 2022 on Friday.
The yen hit a 7-month peak.
QUOTES:
RYOTA ABE, ECONOMIST, SMBC, SINGAPORE
“I think USD/JPY will shift to 140-145 zone because of worse-than-expected NFP (U.S. non-farm payroll report) and the Middle East tensions. And the two reasons will likely weigh on Asian markets as market players will hesitate to take risks in this situation.
“Stronger yen will also weigh on Nikkei index as corporate margins will fall, as many corporates did not expect such a sharp and sudden rise of the Japanese yen at all.”
MASAFUMI YAMAMOTO, CHIEF CURRENCY STRATEGIST, MIZUHO SECURITIES, TOKYO
“There’s a risk that the yen will fall further. The near term at the support will be 144.50, where the 90-week moving average is. If that is, I think the next target will be 140.
“But I would say that this the market pricing of a 50 basis rate cut by the Fed in the September meeting is too much. The U.S. economy is showing signs of slowdown, but it’s not as bad as market is pricing in.”
CHARU CHANANA, MARKET STRATEGIST, SAXO MARKETS, SINGAPORE
“There’s been a dramatic shift in market narrative last week from concerns about elevated inflation to worries about growth and a potential recession.
“U.S. economic data remains in the driving seat now and the more the U.S. soft landing assumption gets questioned, the further pullback we can see in equity and carry strategies where positioning has also been stretched.
“However, markets have gone a bit too far expecting the Fed rate cuts and four rate cuts priced in for this year seems a stretch considering that the June dot plot showed only one cut and the structural inflation forces in play.”
(Reporting by Ankur Banerjee and Vidya Ranganathan; Editing by Sonali Paul)
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