As U.S. House of Representatives Speaker Nancy Pelosi was about to embark on a trip to Taiwan, concerns about the possibility of a worldwide recession increased, sending Asian stocks tumbling on Tuesday. This was due to concerns about an escalation in Sino-U.S. hostility.
As investors sought out safer assets in response to China’s threat of consequences should Pelosi visit the self-governing island, which China also claims as its territory, long-term Treasury yields in the United States fell to a four-month low. This caused the currency to weaken. Crude oil also decreased.
Following the central bank’s predicted 50 basis point increase in the main rate, Australian stocks pared losses and the Aussie dollar fell as the markets saw modifications to the accompanying policy statement as dovish.
Taiwan’s stock index (.TWII) fell 1.87 percent, while Japan’s Nikkei (.N225) fell 1.54 percent.
Hong Kong’s Hang Seng (.HSI) sank 2.71 percent, and Chinese blue chips (.CSI300) fell 2.47 percent.
However, Australia’s stock benchmark (.AXJO) was only down 0.23 percent after falling by 0.7 percent earlier.
The largest Asia-Pacific share index maintained by MSCI (.MIAP00000PUS) fell 1.33 percent.
U.S. e-mini stock futures indicated that the S&P 500 (.SPX), which down 0.28 percent over night, would open 0.44 percent lower.
“We knew from the onset that (Pelosi’s trip) would be a driver of risk-off sentiment in the region,” according to Carlos Casanova, a senior economist for Asia at Union Bancaire Private in Hong Kong.
“There’s going to be a lot of speculation and uncertainty about what the extent of China’s response will be in the short term.”
Beginning the week, reports of declining manufacturing activity came from China, Europe, and the United States, with factory activity in the latter region slowing to its lowest level since August 2020.
Because of this, petroleum prices fell; on Tuesday, Brent futures dipped to $99.27 per barrel after losing nearly $4 over the previous night. The decline of over $5 on Monday was extended by U.S. West Texas Intermediate futures, which decreased to $93.26.
In anticipation of the U.S. Federal Reserve easing off the policy-tightening pedal, the benchmark 10-year U.S. Treasury yield dropped as low as 2.53 percent in Tokyo trade, the lowest level since April 5. Prior to Pelosi’s trip to Taiwan, demand for safety-seeking assets benefitted the bonds as well.
Because of this, the American dollar fell below the 130.40 yen mark for the first time since June 6. The euro surged to a new record high of $1.0294, not seen since July 5.
On the weaker side of 30 to the dollar, the Taiwan dollar fell to its lowest point in more than two years.
The Australian dollar was down 0.51 percent at $0.69910 and has already lost 0.14 percent since the Reserve Bank of Australia’s policy announcement.
The previous session saw it reach $0.7048, the highest level since June 17, but that was after it rebounded from a 26-month low of $0.66825 in the middle of last month.
“The Aussie has been underperforming other major currencies lately given global growth concerns so it really needed a hawkish surprise to reignite its recovery from 2-year lows,” said Sean Callow, a Sydney-based currency strategist at Westpac.
“Instead, it got the RBA leaving the door wide open to slowing the pace of tightening at future meetings, sending AUD back below $0.70.”
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