Global share markets and U.S. futures faced a downturn on Monday, following indications from the Bank of Japan regarding a potential interest rate hike. The benchmark in Tokyo, the Nikkei 225, fell by nearly 2%, while oil prices experienced a significant rise, increasing by over $1 per barrel.
Early trading saw the futures for the S&P 500 drop by 0.6%, and the Dow Jones Industrial Average lose 0.5%. In Europe, Germany’s DAX index decreased by 1% to 23,589.90, while the CAC 40 in Paris fell 0.5% to 8,079.94. The UK’s FTSE 100 edged down by 0.1% to 9,707.68.
The decline follows comments from Kazuo Ueda, Governor of the Bank of Japan, who stated that the central bank is likely to discuss the possibility of an interest rate increase at its upcoming meeting on December 19, 2023. Japan’s current benchmark interest rate is set at 0.5%, which has remained near zero for several years as officials have grappled with stimulating economic growth and combating deflation. With inflation consistently above the target of 2%, the Bank faces a challenging decision between raising rates to curb rising prices and maintaining easy credit to encourage business investment and consumer spending.
Regional manufacturing reports are drawing attention as they may indicate the impact of heightened tariffs from the United States on Asian economies. A recent survey of Japanese factory managers revealed that manufacturing activity slowed in November. The S&P Global Japan Manufacturing Purchasing Managers Index, or PMI, recorded a reading of 48.7, slightly up from 48.2 in October, yet still indicating contraction, with 50 marking the threshold for growth.
In China, factory activity contracted for the eighth consecutive month in November, highlighting ongoing challenges for the economy despite an extended trade truce with the U.S. In contrast, Hong Kong’s Hang Seng index increased by 0.7% to 26,033.26, while Shanghai’s Composite index also gained 0.7% to 3,914.01. In Seoul, the Kospi fell 0.2% to 3,920.37, and Australia’s S&P/ASX 200 decreased 0.6% to 8,565.20. Taiwan’s Taiex lost 1%, while India’s Sensex dipped 0.1%.
Despite the overall decline in manufacturing activity, some analysts note a rebound in exports from the region in recent months. Shivaan Tandon, Asia economist for Capital Economics, commented on the situation, stating that PMI readings reflect weak factory conditions but hint at potential recovery in export sectors.
On the consumer front, spending during the recent Black Friday and Cyber Monday shopping events was anticipated to surpass expectations, even amid uncertainties regarding the U.S. economy. Following a post-Thanksgiving trading session on Friday, which saw the S&P 500 rise 0.5% and the Dow gain 0.6%, the Nasdaq also increased by 0.7%. Trading was temporarily halted for these indices due to a technical issue linked to a data center outage at the Chicago Mercantile Exchange.
The U.S. Federal Reserve has already implemented two interest rate cuts this year to bolster the weakening job market. Yet, as inflation rises and employment slows, the central bank faces a complex decision on future rate adjustments. The minutes from the Fed’s latest meeting indicated potential divisions among policymakers regarding the next steps.
In commodity trading, U.S. benchmark crude oil prices rose by $1.14 to $59.69 per barrel, while Brent crude increased by the same amount to reach $63.52 per barrel. In currency markets, the U.S. dollar fell to 155.25 Japanese yen from 156.14 yen, and the euro rose to $1.1622 from $1.1596. Bitcoin experienced a significant drop of 4.3%, trading at $87,115.
These market movements reflect a complex interplay of economic indicators and geopolitical factors, highlighting the challenges faced by economies worldwide as they navigate inflationary pressures and shifting trade dynamics.
