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Asian markets tumble as central banks signal end of low rates

/ 03:55 AM July 01, 2017

HONG KONG—Asian markets went into reverse Friday after Wall Street and Europe suffered hefty losses in response to central banks’ signals that an end to the era of cheap-money was drawing to a close.

After years of loose monetary policies designed to navigate global economies out of the financial crisis, improving growth and easing unemployment have allowed banks to start flagging tightening measures including interest rate hikes.

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While the upbeat outlook is welcomed as a sign of optimism —Asian markets rallied on Thursday—there are concerns the world economy can withstand a more stringent borrowing environment.

Wall Street’s three main indexes ended deep in the red, while European stocks were also well down.

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The selling seeped through to Asia with heavy losses in technology firms continuing while banks were hit by profit-taking.

Tokyo ended the morning 1.1 percent lower, Hong Kong fell one percent, Sydney sank 1.5 percent and Singapore shed 0.9 percent.

Wellington, Taipei and Manila were also well down.

Shanghai gave back 0.3 percent as dealers brushed off data showing a forecast-beating jump in an index of Chinese manufacturing.

The official reading of the purchasing managers index indicated the world’s number two economy was stabilizing, despite concerns of a growth slowdown.

“It’s the wild swings we are starting to see that worry me the most. Volatility begets volatility and the chances of a very big dip are growing,” said Greg McKenna, chief market strategist at AxiTrader.

There is also fading optimism that President Donald Trump will be able to push through promised market-friendly growth programmes as he struggles to garner support for his health care bill despite controlling both houses of Congress.

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The shift by central banks out of their easy-money policies —led by Britain, the European Central Bank and Canada—has also weighed on the dollar.

For years the greenback has benefited from a divergence between the Federal Reserve’s move to higher rates—including to rate hikes this year—and other regions. But analysts said the mood is changing.

“A game changer of a week as hawkish central bank commentary steamrolled the markets,” said Stephen Innes, senior trader at OANDA.

“Traders are now contemplating who will be next to join the lineup. No one want’s to miss out on this party realizing there’s a coordinated policy shift afoot and the chance to catch the removal of an easing bias is far too seductive for traders to ignore.”

Talk of tighter ECB rates has pushed the euro to more than one-year highs while the pound has also benefited, despite political uncertainty in Britain. Both currencies were up in Asia. —AFP

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