Asian shares fall on trade, Fed rate hike fears, pound hits 2-week top
SYDNEY (Reuters) - Asian stocks were hammered on Monday as fears of faster rate hikes in the United States and uncertainty around the Sino-US trade war dented risk sentiment, while sterling jumped to two-week highs on hopes of an orderly Brexit.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS stumbled more than 1 percent but was still well off a 1-1/2 year trough touched last week.
Japan's Nikkei sank 1.2 percent while South Korea's KOSPI index plunged 1.8 percent.
Chinese shares opened in the red with blue-chip stocks off 1 percent even as President Xi Jinping promised to lower import tariffs and continue to broaden market access.
Xi, however, acknowledged conditions abroad had created some challenges for the Chinese economy.
US stock futures were down 0.3 percent ESc1 1YMc1 after Wall Street closed in the red on Friday on a combination of upbeat jobs growth for October and concerns a trade deal between the United States and China may not be struck soon.
“We expect US-China trade tensions to get worse before they get better,” Citi analysts said in a note.
“Although trade growth has held steady, concerns are rising in business surveys,” they added.
“Equity markets do not seem to be fully incorporating the risks of an escalation of tensions yet, which could have an effect on investment, sentiment, inflation, and growth.”
Sentiment is also broadly expected to be nervous ahead of US congressional midterm elections on Tuesday.
Opinion polls show a strong chance that the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with President Donald Trump’s Republican Party likely to hold the Senate.
Also clouding the outlook for world shares is the prospect of tighter monetary policy in the United States, given robust economic data in recent months.
The United States reported solid jobs growth for October, with annual wage gains at 9-1/2-year highs, further boosting expectations for a December rate rise.
“The US employment report supports our view that the Federal Reserve will raise rates three more times from now until mid-2019,” Capital Economics said in a note.
“After that, we suspect that the cumulative effect of monetary policy tightening will start taking a toll on the US economy, forcing the Fed to end its tightening cycle and pulling Treasury yields, the US stock market, and the dollar down.”