Asian stocks follow Wall Street as Fed fights inflation
Asian stock markets followed Wall Street’s decline on Thursday after the Federal Reserve made another sharp hike in interest rates and raised its outlook to further calm runaway inflation.
Shanghai, Tokyo, Hong Kong and Sydney fell. Oil prices rose slightly.
The dollar hit nearly 145 Japanese yen after the Bank of Japan opted to keep its ultra-loose monetary policy unchanged, with its benchmark interest rate at minus 0.1%. Japan’s central bank has maintained such a policy for years, trying to stimulate business activity and counter deflation.
In the middle of the afternoon, the dollar was at 144.94 yen, against 143.46 yen on Wednesday evening. The euro fell to 98.29 cents from 99.09 cents.
Wall Street’s benchmark S&P 500 index fell 1.7% on Wednesday to a two-month low after the Fed raised its key rate by 0.75 percentage points, three times its usual margin. The Fed has said it expects this rate to be a full percentage point higher by the end of the year than it was three months ago.
“The Fed still managed to outpace the markets,” Fidelity International’s Anna Stupnytska said in a report. “Economic strength and a boiling labor market point to a limited trade-off – at least for now – between growth and inflation.”
The Shanghai Composite Index fell 0.3% to 3,108.43 and the Nikkei 225 in Tokyo slipped 0.6% to 27,153.83. Hong Kong’s Hang Seng fell 1.7% to 18,134.45.
South Korea’s Kospi fell 0.7% to 2,331.76 and India’s Sensex opened down 0.4% to 59,456.78.
New Zealand edged up less than 0.1% while Southeast Asian markets declined.
The Fed and central banks in Europe and Asia are raising rates to slow economic growth and calm inflation, which is at its highest in several decades.
Traders fear derailing global economic growth. Fed officials acknowledge the possibility that such aggressive rate hikes could lead to a recession, but say inflation needs to be brought under control. They indicate that the US labor market is relatively strong as evidence that the economy can tolerate higher borrowing costs.
“The Fed’s new economic projections underscore that it will tolerate a recession to bring inflation down,” EY Parthenon’s Gregory Daco said in a report.
The yield on the 2-year Treasury, or the difference between the market price and the payout if held to maturity, rose to 4.02% from 3.97% on Tuesday night. It was trading at its highest level since 2007.
The 10-year Treasury yield, which influences mortgage rates, fell to 3.52% from 3.56% on Tuesday evening.
The S&P 500 fell to 3,789.93. The Dow Jones fell 1.7% to 30,183.78 and the Nasdaq composite lost 1.8% to 11,220.19.
Wall Street’s major indexes are poised for their fifth weekly loss in six weeks.
Fed Chairman Jerome Powell underscored his determination to raise rates high enough to bring inflation back toward the central bank’s 2% target. Powell said the Fed had just started to hit that level with this most recent increase.
The central bank’s latest rate hike raised its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level in 14 years, and in up from zero at the start of the year.
The Fed released a forecast known as the “dot plot” that showed it expects its benchmark rate to be 4.4% by the end of the year, one point higher than expected in June.
Consumer prices in the United States rose 8.3% in August. That was down from July’s 9.1% peak, but core inflation, which excludes volatility in food and energy prices to give a clearer picture of the trend, has eased. to 0.6% from the previous month, compared to an increase of 0.3% in July.
Central bankers in Britain, Switzerland and Norway are to say whether they will also hike rates again. Sweden surprised economists this week with a one-point rise.
The global economy was also shaken by Russia’s invasion of Ukraine, which drove up the prices of oil, wheat and other commodities.
In energy markets, benchmark U.S. crude gained 19 cents to $83.13 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1 to $82.94 on Wednesday. Brent crude, the price basis for international oil trade, advanced 20 cents to $90.03 a barrel in London. It was down 79 cents the previous session at $89.83.
This story was originally published September 22, 2022 1:47 a.m.