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Asia Markets Drop After Powell’s Friday Speech

On Monday, shares in Asia-Pacific markets were trading lower, after the speech delivered by Jerome Powell, the chairman of the Federal Reserve, on Friday.

He warned that the US economy would have to deal with some pain because of the rising interest rates and also added that they would have to deal with persistently high rates for some time.

Markets fall

There was a 2.66% decline in the Japanese Nikkei 225 index, which saw it come down to 27,878.96. A 1.79% drop was also recorded in the Topix index, which brought it down to 1,944.10.

The Kospi index in South Korea shed 2.18% to reach 2,426.89, while a 2.81% drop in the Kosdaq saw it come down to 779.89.

The Australian S&P/ASX 200 index dropped by 1.95% to close at 6,965.50. A 0.76% was also recorded in the Hang Seng index in Hong Kong in the last hour of trading.

As for the Hang Seng tech index, it suffered from losses of 1.36%. A 1.9% fall was also seen in MSCI’s index of Asia-Pacific shares not including Japan.

The Japanese yen, on the other hand, was trading against the dollar at 138.68.

The Shenzhen Component in mainland Chinese markets dropped 0.34% to reach 12,018.16, while the Shanghai Composite recorded gains of 0.14% to hit 3,240.73.

US markets

The US markets had plunged on Friday after Powell’s speech. The Dow Jones Industrial Average had shed 3.03% to reach 32,283.40.

A 3.37% loss in the S&P 500 saw it come down to 4,057.66, while a 3.94% drop in the Nasdaq Composite had seen it reach 12,141.71.

Powell stated that inflation could only come down with the combination of slower growth, higher interest rates and a softer labor market.

But, he acknowledged that it would be people and businesses paying the price for it. He asserted that these were the side effects of bringing down inflation, but not restoring price stability could be worse.

He also added that the decision of the Fed for September would completely depend on incoming data and the evolving outlook of the economy.

Interest rate expectations

As of early morning, there was a 70.5% chance of a 75 basis points interest rate increase to come from the Fed in September.

The expectations of traders had been divided between a hike of half a percentage point and a three-quarter point rise.

Before the speech delivered by Powell on Friday, the probability of a larger hike had stood at 54.5%, but it had gone up after the speech.

The chances of a smaller 50 bps increase were now standing at 29.5%. The negative reaction of the market to the speech showed that equity prices do not reflect higher interest rates as yet.

There was also a weakening in the Japanese yen recorded after Powell’s Friday speech against the US dollar.

The currency has been weakening because of the divergence in the monetary policy of the two countries, as the US currency has gotten a boost due to higher interest rates.

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