Asian stock markets mirrored a slump on Wall Street as traders eagerly anticipated Jerome Powell’s forthcoming speech for insights into the interest-rate outlook.
Equity markets in Japan, Australia, South Korea, and China all experienced declines, with Hong Kong-listed technology stocks notably affected, echoing the heavy sell-off in US tech shares on Thursday.
The Nasdaq 100 recorded a 2.2% drop, marking its most significant decline in three weeks while the S&P 500 also experienced a drop of over 1%, nearly erasing its weekly gains.
Futures contracts for these US benchmarks saw minimal changes during Asian trading.
In the bond market, Treasury yields, particularly the two-year yields, which are sensitive to immediate policy moves, surged above 5% on Thursday.
Meanwhile, Australian and New Zealand bond yields saw slight increases in Asian trading.
The greenback further strengthened against its G-10 peers, while the yen weakened, breaching 146 per dollar for the first time since Tuesday, following slightly lower-than-expected inflation data for Tokyo.
Even with Chinese authorities urging top financial institutions to support a struggling market, Chinese stocks experienced a slump.
Morgan Stanley, for the second time in three months, cut price targets for Chinese equity benchmarks. Meituan shares also slid after the company issued a warning about a slowdown in its core meal delivery business.
Investor attention is now focused on the annual gathering of top central bankers in Jackson Hole, Wyoming, where Powell is scheduled to deliver a speech at 10:05 a.m. Washington time on Friday.
Powell is expected to outline how officials will assess the necessity of rate hikes and when to initiate rate cuts.
Leading up to Powell’s address, Susan Collins, the President of the Federal Reserve Bank of Boston, indicated that rate increases may be necessary but refrained from signaling the peak point.
In contrast, Patrick Harker, the President of the Federal Reserve Bank of Philadelphia, anticipates interest rates remaining unchanged for the rest of the year, suggesting that policymakers have likely implemented sufficient tightening measures.
In an earlier interview on Bloomberg Television, former St. Louis Fed President James Bullard suggested that a surge in economic activity this summer could postpone the Fed’s plans to conclude interest-rate increases.
A survey conducted by 22V Research reveals that 78% of investors expect Powell to prioritize data dependency in his speech, with only 21% anticipating a “risk-off” market reaction, while 43% expect a mixed or negligible response, and 37% predict a “risk-on” reaction.
Dennis DeBusschere, founder of the New York-based research firm, commented, “If Powell focuses on data dependency, that ought to help 10-year yields stabilize,” highlighting the potential to provide a “tailwind” to the growth-versus-value trade.
Bearish Sentiment Persists: Investors Lose N112 Billion on NGX
Drastic Decline in FGN Bond Listings Raises Concerns Over Government Borrowing
Data from the Nigerian Exchange Limited (NGX) has shown that the value of listed Federal Government of Nigeria (FGN) Bonds on the exchange experienced a decline of 99.9% in the eight months ending on August 31, 2023.
Plummeting from N1.6 trillion recorded during the corresponding period in 2022 to a mere N148.2 billion.
The stark contrast in FGN Bond listings between the two years has raised eyebrows and prompted experts to delve into the implications of this significant shift.
Analysis of NGX data revealed that the bonds listed this year primarily consisted of the FGN Savings Bond and Sukuk, whereas the previous year featured a combination of both Federal Government Bonds and Savings Bonds.
Among the listings, the FGN Sukuk stood out with the highest recorded value of N130 billion for the period under review.
Analysts have identified several factors contributing to the stark decline in FGN Bond listings.
David Adonri, an analyst and Vice Executive Chairman at HighCap Securities Limited, commented on this development, and said, “The reduction of FGN Bond listing could be an indication that the government borrowed less in the domestic market, and its implication is that it could affect liquidity in the secondary market.”
He continued, “The decline could also be that the FGN Bonds were not listed on the Exchange during the period under review as only the Savings Bonds were captured as well as Sukuk.”
Adonri highlighted concerns about the country’s debt profile, both domestically and internationally, saying, “Both externally and internally, the immediate past government had taken more debt. This is increasing the risk of sovereign default and economic nightmares.” He also noted the adverse effects on the real sector, explaining that “the borrowing has now reached the alarming point of crowding out the productive real sector.”
Tajudeen Olayinka, an Investment Banker and Stockbroker, echoed similar sentiments, saying, “If there was an increase in debt listings in the market, it brings about increased liquidity and trading activities in the market, but the drop in the eight-month period could be largely as a result of higher yields in other competing instruments.”
Olayinka also speculated that “the drop in the FGN Bond listing could also be that there was less borrowing by the government in the primary market so not much to offer for listing in the secondary market.”
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