Equity markets soften in Asia

Asian markets mixed after FOMC meeting

The moves in the FOMC dot plots and language change, despite the rear-guard action by Jerome Powell, saw equity markets fall into negative territory on Wall Street overnight. The S&P 500 lost 0.54%, with the Nasdaq easing by 0.24%, while the Dow Jones retreated by 0.77%. Although futures on all three have recovered some early Asian losses, they remain around 0.40% lower in after-market trading.

By contrast, Asia’s reaction has been relatively subdued, possibly because investors in parts of the region appeared to reduce exposure this week ahead of the FOMC. Unsurprisingly, this week’s most effervescent Asian markets, Japan and South Korea have suffered the most. The Nikkei 225 is 1.30% lower, while the Kospi has fallen by 0.50%, with the fall of the won post-FOMC limiting the damage to South Korean exporters.

China, by contrast, is in positive territory despite Reuters reporting that China has begun an anti-trust probe into Didi Chuxing, China’s ride-hailing champion, which is planning a US IPO (that could be part of the answer). The Shanghai Composite is up 0.15% today, with the CSI 300 jumping 0.50%, while Hong Kong has risen 0.20%. The China-induced fall in commodity prices is price supportive, but post-FOMC, the price action smells of China’s “national team” buying equities. That makes sense, given the government’s interventionist tone elsewhere at the moment.

Across the region, Singapore is down by 0.25%, Kuala Lumpur by 0.45%, Jakarta by 0.35% and Taipei by 0.35%. Bangkok is unchanged after the government announced tourism reopening intentions yesterday. Data is supporting Singapore markets, and the same appears to be the case in Australia. The huge employment rebound and a dovish speech by the RBA Governor mean the ASX 200 is down just 0.10% while the All Ordinaries remains 0.35% in the red.

If Asia is in wait-and-see mode, the overnight developments will likely reverse Europe’s positive overnight session. Whether this is a dip to buy into for equities or the start of an FOMC-induced correction lower will depend on the mood of the gnomes of Wall Street this evening and if the Tao of the FOMO still rings true. Should an FOMC tantrum ensue, banking equities will likely be the only winners as higher interest rates are their happy place.

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