Asian markets wavered and U.S. stock futures declined on Wednesday following a heated U.S. presidential debate between Democratic Vice President Kamala Harris and Republican Donald Trump. The candidates sparred over key issues including abortion, the economy, immigration, and Trump’s legal troubles during their first debate, leaving investors uneasy.
Impact on Asian and U.S. Markets
The uncertainty from the debate contributed to a decline in the MSCI’s broadest index of Asia-Pacific shares outside Japan, which fell by 0.25%. S&P 500 futures also eased by 0.38%. The dollar faced pressure, with the dollar index, which measures the currency against six peers, decreasing by 0.21% to 101.43 during Asian trading hours.
Debate’s Influence on Market Sentiment
The entry of Harris into the presidential race, following President Joe Biden’s withdrawal in July, has intensified the political contest, leading to a reversal of trades based on expectations of a second Trump term. Although the debate is not expected to directly impact near-term monetary policy, investors are keenly watching the candidates’ fiscal policies and economic plans.
Rob Carnell, ING’s regional head of research for Asia-Pacific, commented, “I don’t think there’s a lot for markets here. Harris seems to be managing Trump quite well.” He noted that if Trump were performing better, a stronger dollar might have been expected. “The market seems to lean slightly towards Harris,” Carnell added.
Asian Market Performance
In Asia, Japan’s Nikkei index fell by 0.8%. Chinese stocks also declined, with the Shanghai Composite index decreasing by 0.75% and the blue-chip index down by 0.16%. Hong Kong’s Hang Seng index dropped by 1%.
Focus on U.S. Inflation Data
Attention will soon shift to the U.S. Labor Department’s consumer price index (CPI) report, scheduled for release later on Wednesday, which is expected to provide insights into future Federal Reserve policy decisions. The headline CPI is projected to have increased by 0.2% month-on-month in August, maintaining the previous month’s rate.
Despite widespread expectations for a Federal Reserve interest rate cut next week, the extent of the reduction remains uncertain. The Fed’s focus has shifted towards employment rather than inflation, following a mixed labor report last Friday that did not clarify the central bank’s direction.
Carnell noted, “What we needed to see to spur the Fed into greater action would be much more obvious evidence of slowdown/recession, particularly in the labor market. The last payrolls report didn’t provide that.”
Market Expectations for Fed Rate Cut
Current market pricing suggests a 66% chance of a 25 basis point rate cut by the Federal Reserve, while a 34% probability is assigned to a 50 basis point cut. This data is based on the CME FedWatch tool.
Currency and Commodity Movements
The dollar remained on the defensive, with the yen strengthening by as much as 0.6% to 141.51 per dollar, its highest level since January. This was driven by comments from Bank of Japan board member Junko Nakagawa, who affirmed the central bank’s intention to raise interest rates if economic and inflation conditions align with its forecasts.
In commodities, oil prices stabilized after a 3% drop in the previous session and remained near their lowest levels in three years. Brent crude futures were last up by 0.68% at $69.65 per barrel, while U.S. West Texas Intermediate (WTI) crude increased by 0.75% to $66.25 per barrel. This stabilization follows OPEC+ revising down its demand forecasts for this year and 2025.
Conclusion
The combination of political uncertainty from the U.S. presidential debate, anticipated inflation data, and fluctuating commodity prices has led to cautious sentiment in global markets. Investors are closely monitoring these developments to gauge their potential impact on economic policy and market performance.
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