Asian stocks fell sharply on Friday on concerns over persistent hawkish talk from central banks and consequent worries about global recession, while most currencies sighed after the US dollar took a step back from its dominant rally.
Stocks in the Philippines fell 1.7% to their lowest level since the COVID-19 pandemic, followed by stocks in Taiwan, which were down 1%. Malaysian shares fell as much as 0.5% to hit a two-year low.
The sell-off in stocks resumed mainly after US Federal Reserve officials gave no indication that the central bank would change plans to aggressively raise interest rates to slow down inflation.
“Inflationary concerns also returned to the forefront with Fed officials opining that they were still not even in restricted territory in the fund rate” and that they have to bring real interest rates to positive territory and hike it there for some time,“ OCBC analysts said in a client note.
Currencies in the region got some respite after the greenback paused its rally despite hawkish fed talk, and after Reuters reported that China’s central bank asked major state-owned banks to be prepared to sell dollars for yuan in offshore markets to stem the Chinese currency’s descent.
Dollar-selling and yuan-buying could put a floor under the Chinese currency, which has lost more than 11% to the dollar so far this year and looks set for its biggest annual loss since 1994, when China unified its official and market rates.
Also contributing a lift in yuan sentiment was China’s decision to relax the floor on mortgage rates for first-time home buyers in some qualified cities to revive the property sector.
“The threat of FX intervention by People’s Bank of China (PBoC) dragged the greenback against most other currencies. The pair has found support around 7.0940.
The yuan is likely to remain buoyant at current levels against the dollar,“ Maybank analysts said in a client note.
The yuan reversed losses to climb 0.1% after China’s mortgage announcement.
The Indonesian rupiah and Taiwan dollar climbed 0.2%. The Indian rupee remained steady at 0.3% after the country’s central bank hiked interest rates by 50 basis-point to tackle surging inflation.
** India’s balance of payments unexpectedly was in surplus in the April-June quarter, but economists said this positive reading was likely an anomaly.
** China factory activity ekes out growth in September, weakening global demand weighs
** Singapore tightens property curbs to tame demand as interest rates rise