Asian stocks follow Wall St’s pullback on interest rate concerns
Asian stocks followed a retreat on Wall Street after details from last month’s Federal Reserve meeting showed the central bank planned to be aggressive in tackling inflation.
The Fed’s comments added to investor unease over the war in Ukraine, coronavirus outbreaks in China and persistently high inflation.
Benchmarks fell on all major regional markets on Thursday. US futures fell as oil prices were higher.
Minutes from the meeting three weeks ago showed Fed policymakers agreed to start cutting the stock of central bank Treasuries and mortgage-backed securities by about 95 billion per month, starting in May. That’s more than some investors expected and nearly double the pace the last time the Fed shrunk its balance sheet.
At the meeting, the Fed raised its benchmark short-term rate by a quarter of a percentage point, the first increase in three years. The minutes showed that many Fed officials wanted to raise rates by an even bigger margin last month, and they still saw “one or more” such oversized increases potentially coming in future meetings.
Higher rates tend to lower the price-to-earnings ratio of stocks, a key valuation barometer. Such a scenario can particularly hurt stocks considered to be the most expensive, including big tech companies.
Tokyo’s Nikkei 225 lost 1.9% to 26,858.32 while Hong Kong’s Hang Seng was down 1.3% to 21,791.30. The Shanghai Composite Index fell 1% to 3,251.06. South Korea’s Kospi fell 1.4% to 2,696.64 and Australia’s S&P/ASX 200 fell 0.6% to 7,449.10.
Overnight, the S&P 500 fell 1% to 4,481.15, adding to its losses the day before. The Dow Jones Industrial Average fell 0.4% to 34,496.51 and the tech-heavy Nasdaq lost 2.2% to 13,888.82.
Shares of smaller companies also fell, sending the Russell 2000 Index down 1.4% to 2,016.94.
Tech stocks were the biggest drag on the benchmark S&P 500. Apple fell 1.8% and Microsoft 3.7%.
Communications companies, retailers and others that rely on direct consumer spending also weighed heavily on the index. Amazon fell 3.2% and Facebook parent company Meta fell 3.7%.
Investors focus on Fed policy as the central bank moves to reverse low interest rates and the extraordinary support it began providing the economy two years ago when the pandemic hit. plunged the economy into a recession.
A faster reduction in the Fed’s balance sheet would help push up longer-term rates, but also increase borrowing costs for consumers and businesses.
The 10-year Treasury yield rose to 2.61% after the release of the minutes, from 2.54% on Tuesday evening.
Early Thursday, the yield, which is used to set interest rates for mortgages and many other types of loans, was 2.58%. It is at the highest level for three years.
Traders are now pricing in a nearly 77% chance that the Fed will raise its key interest rate by half a percentage point at its next meeting in May. That’s double the usual amount and something the Fed hasn’t done since 2000.
Inflation is at its highest level in four decades and threatens to dampen economic growth. Rising prices for everything from food to clothes have raised fears that consumers may end up cutting back on spending. Russia’s invasion of Ukraine added to these concerns, pushing energy and commodity prices, including wheat, even higher.
Benchmark crude oil prices in the United States fell 5.6% on Wednesday, but are more than 30% higher for the year. This pushed gasoline prices higher, putting more stress on shipping costs, commodity prices and consumer wallets.
On Thursday, benchmark U.S. crude gained $1.60 to $97.83 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the standard for international prices, jumped $1.87 to $102.94 a barrel.
Treasury Secretary Janet Yellen warned a House panel on Wednesday that the dispute would have “huge economic repercussions in Ukraine and beyond.”
Western governments plan to ban further investment in Russia following evidence that its soldiers deliberately killed civilians in Ukraine. The US Treasury has said President Vladimir Putin’s government will be prevented from paying the dollar debts of US financial institutions, potentially increasing the risk of default.
European governments have resisted calls to boycott Russian gas, Putin’s main export source, because of the possible impact on their economies.
The dollar fell to 123.64 Japanese yen from 123.81 yen. The euro fell from $1.0985 to $1.0897.