By Joanne Chiu
International markets fell, after cautious comments from U.S. Federal Reserve Chairman Jerome Powell added to concerns about the global economy.
In afternoon trading in Hong Kong on Thursday, the Hang Seng Index and Nikkei 225 both dropped 1.3%. Benchmarks in South Korea and Australia declined around 1% each, while the Shanghai Composite retreated 0.7%.
The Dow Jones Industrial Average dropped 2.2% Wednesday, after Mr. Powell said further stimulus could be needed to support the U.S. economy's recovery from its coronavirus-induced contraction.
E-mini S&P 500 futures were modestly lower during Asian trading hours, suggesting U.S. shares could come under fresh pressure on Thursday.
Dwyfor Evans, head of macro strategy for Asia Pacific at State Street Global Markets, said markets were weighed down by Mr. Powell's "extremely negative" remarks, and the Fed chairman was effectively "crying out for political assistance" in the form of greater government spending.
On Wednesday Mr. Powell warned that, with company revenues depressed for longer, waves of business bankruptcies could follow, risking a much slower pace of improvement in the job market.
Mr. Evans at State Street said renewed trade tensions were also concerning, and if they picked up could lead to U.S. investors bringing back some capital invested abroad.
The Trump administration recently told a federal retirement plan to avoid Chinese stocks, while the Global Times, a Communist Party-run newspaper, said that Beijing was exploring punitive countermeasures to U.S. lawsuits seeking damages from China for the pandemic.
Thomas Poullaouec, Asia-Pacific head of multiasset solutions at T. Rowe Price, said U.S. debate about rebalancing economic relations with China would likely increase as November's presidential election approached. However, he said he didn't expect concrete actions given the economic backdrop, and so the trade issues would probably only increase volatility, rather than pull markets lower.
State Street's Mr. Evans said the Chinese government's annual legislative meetings, set to start on May 22, could give markets in Asia a lift.
He said Beijing could offset weak exports by cutting taxes and levies to encourage domestic consumption, helping boost China's economic recovery from the coronavirus. "China should be leading the global economy out of this. We think of it very much as first into the crisis, first out of the crisis," he said.
Write to Joanne Chiu at email@example.com