SYDNEY: Share markets tumbled and bonds rallied in Asia on Monday as fears the United States could be heading for recession sent investors rushing from risk assets while wagering that rapid-fire rate cuts will be needed to rescue growth.
The benchmark KOSPI fell as much as 7 per cent in afternoon trade, after dropping 3.7 per cent on Friday, and was set to post its worst session since March 2020. The worryingly weak July payrolls report saw markets price in a near 70 per cent chance the Federal Reserve will not only cut rates in September, but ease by a full 50 basis points. Futures imply 115 basis points of cuts in the 5.25-5.5 per cent funds rate this year, and see rates around 3.0 per cent by the end of 2025.
"Now that the Fed looks to be materially behind the curve, we expect a 50bp cut at the September meeting, followed by another 50bp cut in November," said economist Michael Feroli. The huge drop in Treasury yields had also overshadowed the US dollar's usual safe-haven appeal and dragged the currency down around 1 per cent on Friday.