Shares in Asia followed Wall Street lower after the US Federal Reserve announced a third straight 0.75 percentage point rise in interest rates and suggested it would keep borrowing costs high well into next year.
Hong Kong’s Hang Seng led the region lower with a drop of 1.6 per cent, while Australia’s S&P/ASX 200 shed 1.7 per cent and Japan’s Topix fell 0.5 per cent. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks lost 0.8 per cent.
The falls for equities in Asian trading came after the Fed raised its main interest rate to a range of 3 to 3.25 per cent and a closely watched “dot plot” of central bank officials’ predictions pointed to further rate increases and no cuts before the end of this year.
Gloomy remarks from Fed chair Jay Powell also added to selling pressure on Wall Street on Wednesday. The S&P 500 index of blue-chip stocks closed down 1.7 per cent, while the tech-focused Nasdaq Composite shed 1.8 per cent.
“The chances of a soft landing are likely to diminish,” Powell warned during a press conference following the interest rate announcement, because monetary policy needed to be “more restrictive or restrictive for longer”.
The latest “dot plot” of Fed officials’ interest rate projections showed the benchmark rate rising to 4.4 per cent by the end of 2022 before peaking at 4.6 per cent next year.
“The Fed does not intend to slow down anytime soon,” said Ray Sharma-Ong, investment director for multi-asset investment solutions at Abrdn. “We expect a Fed monetary policy-induced recession, and that the Fed will only ease after a recession has occurred.”
Tai Hui, a market strategist at JPMorgan Asset Management, said that while the language of the Fed’s official statement was “nearly identical” to the one that accompanied the previous rate rise in July, “aggressive Fed tightening keeps the probability of recession sometime next year elevated.”
Yields on US Treasuries remained elevated after jumping in response to the Fed’s move. Returns on the policy sensitive two-year note hovered at 4.1125 per cent in Asian trading on Thursday, near a 15-year high.
The US dollar index also gained ground in Asia after hitting a 20-year high following the Fed statement. On Thursday, the index measuring the currency against a basket of peers was up 0.9 per cent.
In Asian currencies, the yen was down 0.5 per cent at ¥144.75 against the dollar, while the renminbi fell 0.6 per cent to Rmb7.0895 and the South Korean won dropped 0.8 per cent to Won1,409. The euro was down 0.2 per cent at $0.9821, while the pound fell 0.3 per cent to $1.1235.
Futures markets pointed to further losses for global equities when European markets open, with the Euro Stoxx 50 expected to drop 2 per cent and the FTSE 100 set to shed 1 per cent in London.