Asian markets experienced a significant decline on Monday following two major developments: U.S. President Joe Biden’s withdrawal from the 2024 presidential race and an unexpected interest rate cut by China’s central bank.
U.S. President Joe Biden’s sudden decision to drop out of the race and endorse Vice President Kamala Harris as the Democratic nominee created ripples across global markets. This political shift, combined with economic news from China, contributed to a broad-based selloff in the Asia-Pacific region.
China’s central bank took the market by surprise by cutting the short-term 7-day reverse repurchase rate to 1.7% from 1.8%. Additionally, the People’s Bank of China (PBOC) reduced the one-year and five-year loan prime rates (LPR) by 10 basis points each, bringing them down to 3.35% and 3.85% respectively. This move came as a shock to economists who had not anticipated such changes, as a Reuters survey had indicated that 64% of respondents expected the rates to remain steady. The PBOC also announced plans to lower collateral requirements for its medium-term lending facility starting in July, with the current rate standing at 2.5%.
The reaction in Asian markets was swift. Hong Kong’s Hang Seng Index fell by 1.22% during its final trading hour following the PBOC’s announcement. Mainland China’s CSI 300 Index dropped 0.68% to close at 3,514.92. The offshore Chinese yuan weakened by 0.1% to 7.2922 against the U.S. dollar.
In India, the rupee hit a record low against the U.S. dollar, weakening to 83.6775, surpassing its previous record low of 83.6650 set in June.
Adding to market concerns, a significant global IT outage late last week affected machines running Microsoft’s Windows operating system. The outage, attributed to a glitch in an update issued by cybersecurity company CrowdStrike, led to a dramatic 11% drop in its shares. Microsoft reported that approximately 8.5 million Windows devices, or less than 1% of all Windows machines, were impacted.
Looking ahead, investors are keenly awaiting economic data releases this week. South Korea and the U.S. are set to announce their second-quarter advance GDP numbers on Thursday, while inflation figures will be released by the U.S. and Singapore on Friday and Tuesday, respectively. Additionally, factory activity data from across the region will be scrutinized.
In the broader Asian market, the Taiwan Weighted Index led the losses, tumbling 2.68% to close at 22,256.99, driven down by declines in industrial and technology stocks. Japan’s Nikkei 225 fell 1.16% to end at 39,599, marking the first time in three weeks that it dipped below the 40,000 mark. The Topix Index also dropped by 1.16% to close at 2,827.53. South Korea’s Kospi dropped 1.14% to 2,763.51, while the Kosdaq saw a larger decline of 2.26%, ending at 809.96. Australia’s S&P/ASX 200 fell 0.5% to close at 7,931.7.
On Wall Street, U.S. stock markets wrapped up the week on a negative note, with all three major indexes retreating. The S&P 500 dropped 0.71%, the Nasdaq Composite slid 0.81%, and the Dow Jones Industrial Average fell by 377.49 points, or 0.93%, to 40,287.53. The week’s trading was characterized by a shift from mega-cap stocks to smaller companies, reflecting broader market volatility.
