Asia report: Markets sink on Fed rate hike fears

Markets in Asia fell on Monday, following from a very red finish in New York on Friday as traders became increasingly worried the Fed will raise interest rates sooner, rather than later.

Japan’s Nikkei 225 was 1.73% lower at 16,672.92, with the yen strengthening against the greenback.

It was last ahead by 0.52% at JPY 102.16 per $1.

The country’s July core machinery orders rose by a larger-than-expected 2.9% over the prior month, fresh data showed, suggesting private capital spending might have improved.

On the mainland the Shanghai Composite closed down 1.88% at 3,020.94, while the Shenzhen Composite slipped 2.66% to 1,977.06.

As the region went to bed, China was set to release new yuan loans, foreign direct investment and money supply data for August.

Korea’s Kospi lost 2.28% to finish at 1,991.48, breaking below the 2,000 level, and in Hong Kong the Hang Seng Index was down 3.36% to 23,290.60.

In Korean corporate news, Samsung shares dropped 6.98%, extending its losses from Friday after the company - as well as a number of airlines - urged customers to stop using their Galaxy Note 7 smartphones and exchange them over concerns the batteries are prone to combusting.

“Traders have been quick to price in worst case scenario as interest rate rise jitters start taking hold and have resulted in some fairly assertive moves in bond, equity, and forex asset classes,” noted OANDA senior trader Stephen Innes.

“One, the ECB did not extend QE, provoking a sell-off in bond markets, which fed into the medium to long-end US bond curve.

“Two, traders have convinced themselves the Fed are marching out Lael Brainard, a mega-dove, to bang the Fed's September rate hike drum,” Innes added.

The markets were looking towards Fed Governor Lael Brainard, who is scheduled to give a speech at the Chicago Council on Global Affairs later on Monday, US time.

She is expected to give a more dovish contrast to the hawkish sentiment from a number of other Fed speakers in recent dats.

Boston Fed president Eric Rosengren said on Friday that the US economy has proven itself resilient to external risks, with “gradual tightening … likely to be appropriate”.

Oil prices were lower during Asian trading, with Brent crude last down 1.31% at $47.39 per barrel and West Texas Intermediate down 1.55% at $45.18.

Investors were apparently clamouring for the safe haven of government bonds, specifically those of Japan, as global markets slid on Monday.

“This morning in Asia we've seen similar maturity yields in Australia, New Zealand and South Korea rise 5-9 bps, although interestingly 10y JGB yields initially opened higher but have since retreated and are currently 1bp lower,” Deutsche Bank said in a morning note.

“30y yields are however nearly 4 bps higher and so the curve has steepened which fits in with recent headlines that the BoJ wants to maintain a comparatively steep yield curve.”

Markets in Indonesia, Malaysia, the Philippines, Singapore and Sri Lanka were closed for public holidays on Monday.

In Australia, the S&P/ASX 200 lost 2.24% to 5,219.10, with the energy, financials and materials sectors dragging the benchmark, down 3%, 2.01% and 3.23% respectively.

New Zealand’s S&P/NZX 50 plunged in its biggest sell-off since before the Brexit vote, losing 2.5% to 7,279.76.

The down under dollars were both weaker against their American cousin, with the Aussie last retreating 0.51% to AUD 1.3330 per $1 and the Kiwi 0.23% weaker at NZD 1.3699.