On Monday, Sept. 12, Asian trading floors saw stocks taking a dive as top central bankers hinted that cheap money could soon be in low supply.
Investors reacted quickly and pulled out from Asian markets after two Federal Reserve officials announced on Friday, Sept. 9, that a rise in federal interest rate could be in tow as early as this September.
According to Eric Rosengren, the Fed President of Boston, the U.S. economy is under risk of overheating, which asks for an increase in rates. Governor Daniel Tarullo also backed the idea during a televised interview that aired this year.
"There is a undertone building among the Fed Board that delaying rate hikes will hinder rather than assist the economy recovery," Stephen Innes, senior trader at OANDA, says.
The statements reached the media quickly after the helm of the European Central Bank assured the markets that the chances of fresh stimulus are low to inexistent. Following the trend, Japanese officials also touted that new assurance measures are not planned to take place.
The announcements were a bit of a surprise, seeing how the U.S. economy showed rather a lukewarm expansion in service sectors and job growth. Analysts expected to see any federal measures go into effect in December at the earliest.
It should be mentioned that the VIX (U.S. volatility index) was at the highest level since the UK referendum, getting a 39.9 percent boost, says IG market strategist Chris Weston.
The results rippled through the Asian markets: Tokyo stocks dropped by 1.5 percent, Hong Kong reported a loss of 2.3 percent and Shanghai lost 1.4 percent. Seoul reported a 1.8 percent dipping, while Wellington and Sydney each lost more than 2 percent.
Niv Dagan, executive director at Peak Asset Management LLC, points out that the reluctance of central banks to add extra stimulus is causing the markets to grow cautious. He adds that this might cause additional losses for stocks in the near future.
Rumors of the expanded U.S. rates caused the dollar to appreciate against the pound, euro and yen on Friday, but the American currency leveled back on Monday.
However, the dollar gained more momentum against riskier currencies. On Monday, it rose by more than 1 percent against the South Korean won, while it stomped both the Indonesian rupiah and Australian dollar.
Oil prices also plummeted in the wake of Friday's sharp losses, as Brent global benchmark was down 1.9 percent at $47.10 a barrel. West Texas Intermediate dropped 81 cents to $45.07, after losing as much as $1.74 on Friday.
One company that took a severe hit was Samsung Electronics, which lost more than 7 percent. The drop came in the aftermath of U.S. regulators urging people to stop using the company's flagship Galaxy Note 7 as it packs a battery prone to explosions. The manufacturer of the power source, Samsung SDI, lost 6 percent.
As the cases of the Note 7 exploding while charging have piled up, the OEM stopped selling the new smartphone and went as far as recalling 2.5 million units. To maintain flight safety, a number of airlines banned the use of the gadget on their flights.
Since the warning arrived, Samsung saw a tenth of its market capitalization in Seoul vanish.
