Asia report: Markets fall on Biden withdrawal, China cuts rates

(Sharecast News) - Asia-Pacific markets experienced a broad decline on Monday following significant political and economic developments. The region's stocks were impacted by US president Joe Biden's unexpected announcement on Sunday to withdraw from the 2024 presidential race, endorsing his vice president Kamala Harris as the Democratic nominee.

An unexpected cut in interest rates from the People's Bank of China also moved markets.

"Following Joe Biden's withdrawal from the re-election race and his endorsement of vice president Kamala Harris, the US dollar depreciated while Treasuries experienced an increase," said TickMill market analyst Patrick Munnelly.

"In an effort to stimulate economic growth, the People's Bank of China decided to lower a short-term rate for the first time in over a year, resulting in a two basis point decrease in the yield on China's 10-year sovereign note.

"Foreign ownership in China's second-largest bond market reached a record high of CNY 4.3trn (£457.34bn) in a single month, marking the tenth consecutive month of increased investment by international investors."

Munnelly noted that amid a downturn in the technology sector, Chinese stocks declined, contributing to overall regional losses spanning from Japan to Australia.

"The decline in Taiwan Semiconductor Manufacturing reached 3.3%."

Most markets in the red, Hong Kong a notable exception

Japan's Nikkei 225 and Topix both fell by 1.16%, closing at 39,599.00 and 2,827.53 respectively.

The decline on the benchmark index was driven by substantial losses in major companies, with Fuji Electric down 5.53%, Hoya falling 5.42%, and Hitachi decreasing by 4.71%.

In China, the Shanghai Composite dropped 0.61% to 2,964.22, and the Shenzhen Component slipped 0.38% to 8,869.82.

The market reacted to the People's Bank of China's unexpected decision to cut the short-term 7-day reverse repurchase rate, alongside reductions in the one-year and five-year loan prime rates.

Notable losers in Shanghai included Great-Sun Foods and Shanghai Jiao Yun Group, both falling nearly 10%.

Hong Kong's Hang Seng Index was more upbeat, adding 1.25% and closing at 17,635.88.

Positive performances by Trip.com Group, Xiaomi, and Tingyi, which rose by 4.82%, 4.48%, and 3.6% respectively, helped mitigate broader market losses.

South Korea's Kospi index fell by 1.14% to 2,763.51, with significant declines in L&F and EcoPro Materials, dropping 7.22% and 7.12% respectively.

In Australia, the S&P/ASX 200 index decreased by 0.5% to 7,931.70, heavily influenced by a sharp 12.57% drop in South32 shares.

New Zealand's S&P/NZX 50 index saw a marginal decline of 0.13% to 12,309.91.

Meridian Energy led the losses with a 5.22% fall, followed by Mainfreight and Genesis Energy, which decreased by 3.12% and 2.86% respectively.

In currency markets, the dollar was last down 0.41% on the yen, trading at JPY 156.84, while it rose against its Aussie and Kiwi counterparts.

The greenback was last up 0.32% on the Aussie to AUD 1.5007, as it advanced 0.23% against the Kiwi to change hands at NZD 1.6677.

Oil prices saw a slight increase, with Brent crude futures last up 0.24% on ICE to $82.83 per barrel, and the NYMEX quote for West Texas Intermediate climbing 0.34% to $80.40.

China central bank unexpectedly trims interest rates

In economic news, the People's Bank of China (PBoC) unexpectedly cut key interest rates during the day, prompting a significant market reaction.

The short-term seven-day reverse repurchase rate was reduced from 1.8% to 1.7%, while both the one-year and five-year loan prime rates were trimmed by 10 basis points each, to 3.35% and 3.85% respectively.

All of the changes were unexpected, as a Reuters survey last week indicated that 64% of economists anticipated no change to China's rates.

The one-year loan prime rate is crucial for corporate loans, while the five-year rate serves as a benchmark for mortgages.

Additionally, the PBoC announced a reduction in collateral requirements for its medium-term lending facility, which currently has a rate of 2.5%, effective from July.

Meanwhile, investors were still grappling with the effects of a significant global IT outage that occurred late last week.

A glitch in a cybersecurity update from CrowdStrike caused machines running Microsoft's Windows operating system to crash on Friday.

That led to an 11% plunge in CrowdStrike's shares.

Microsoft reported over the weekend that around 8.5 million Windows devices, representing less than 1% of all Windows machines, were affected by the issue.

Reporting by Josh White for Sharecast.com.