Big losses in Tokyo and Shanghai

TOKYO/SHANGHAI – Monday, 8 July

The damper on the interest rate cut fantasy triggered by robust US labour market data on Friday hit the indices in East Asia and Australia hard on Monday. This is probably also attributable to the fact that the propensity to take profits is particularly pronounced at the recently increased level on many stock exchanges.

Although the probability of an interest rate cut on the interest rate futures market at the end of July remains at 100 per cent, the number of those who had even expected a bigger interest rate cut of half a percentage point has fallen significantly. Also, players are now more sceptical about how many further rate cuts could occur and at what pace after that. The markets are now awaiting the semi-annual appearance of US Federal Reserve Chairman Jerome Powell before the US Senate on Wednesday with particularly great excitement. It could provide new signals about the interest rate.

In addition, the fact that Iran was now enriching uranium beyond the permitted level was a source of uncertainty. US President Trump had said on Sunday: “Iran better be careful.” There was a reason why Tehran enriched uranium, and this was “not good”.

New trade dispute: Japan brings South Korea into trouble

In Tokyo, the Nikkei 225 index fell by almost 1 per cent to 21,534 points. The fact that mechanical engineering orders in Japan fell more sharply than estimated in May did not put additional pressure on prices here. The data are known to be volatile.

Losses were highest in Shanghai and Seoul at 2.6 and 2.2 per cent, respectively. In Seoul, technology stocks suffered particularly from Japan’s recent difficulties in exporting key semiconductor and smartphone materials to South Korea. Japanese companies now have to submit an application if they want to export the materials concerned to South Korea. The background to this is the dispute between the two countries over the use of forced labour and forced prostitution during the Second World War.
The South Korean economy should feel the impact of the measure, especially if it leads to delivery delays of more than three months. According to analysts at JP Morgan, the corresponding stocks of South Korean companies were still sufficient for this period. Samsung Electronics lost 2.7 per cent, SK Hynix 1.5 per cent.
In Hong Kong, Country Garden lost 3.5 per cent after the real estate company recently reported weaker sales for June.

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In the forex markets, the US dollar defended the gains it had made on Friday after strong employment data. Only the yen was able to gain some ground and benefited from its reputation as a safe haven. The Turkish lira was under intense pressure. After President Erdogan unexpectedly dismissed the country’s central bank chairman at the weekend, the share price fell to its lowest level for a week.

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