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Asia Shares Slip as Traders Brace For Hefty Fed Rate Hike

Hong Kong was in retreat on a holiday-affected trading day with investors nervously waiting for the US to reveal how far it will lift borrowing costs


Asian Stocks Rebound After China Borrowing Rate Boost
A man stands on an overpass with an electronic board showing Shanghai and Shenzhen stock indexes, at the Lujiazui financial district in Shanghai. File photo: Reuters.

 

Asian stocks fell away again on Wednesday with traders on edge ahead of what is expected to be the Federal Reserve’s steepest interest rate hike in more than two decades just hours away.

With soaraway inflation across the world after two years of pandemic disruption, the US central bank is finally set to tighten its belt this year and that will have serious implications for the global economy.

Added to the likelihood of higher borrowing costs, the war in Ukraine and continued Covid outbreaks and lockdowns – particularly in China – are weighing on supply chains and investors.

 

Also on AF: Yum China Says Latest Covid Surge ‘Worse Than 2020’

 

Financial markets in China and Tokyo were closed but Hong Kong, Sydney, Seoul, Mumbai and Singapore slipped. The Hang Seng Index fell 1.10%, or 232.37 points, to 20,869.52.

Indian stocks were in retreat too with Mumbai’s signature Nifty 50 index down 2%, or 340.75 points, to close at 16,728.35.

Taipei and Manila rose while Wellington was flat. Jakarta, Kuala Lumpur and Bangkok were also closed.

London, Paris and Frankfurt rose in the opening minutes.

Globally, stocks were little changed on Wednesday as investors kept their powder dry ahead of the expected Fed interest rate hike.

The MSCI global stocks index was down 0.1%, while the STOXX index of European companies eased 0.4%.

The 10-year US Treasury yield was just below the closely watched 3% level, while oil prices bounced as the European Union proposed more sanctions on Russia in response to its invasion of Ukraine, including an oil embargo to be phased in by year-end.

 

Bank of England Set To Raise Rates

Markets expect the Fed to raise rates by half a percentage point at 1800 GMT – the most in a single day since 2000 – to curb inflation, and to detail plans to reduce its $8.9 trillion balance sheet.

The US central bank raised its policy interest rate by 25 basis points in March.

“The bigger question is what will the Fed’s guidance be for rate hikes next month. Will we get another 50 basis points in June, and what’s the timeline for balance sheet reduction?” said Michael Hewson, chief markets analyst at CMC Markets.

The global monetary tightening cycle has reached a symbolic milestone, with yields on German, British and US 10-year government debt topping 1%, 2% and 3% respectively, levels not seen in years. That has in turn raised borrowing costs for businesses and households.

The Bank of England is also expected to lift UK interest rates on Thursday by a quarter of a percentage point, which would be its fourth hike in a row to quell surging prices.

 

Crude Oil Prices Advance

“US markets are just about hanging on and how hawkish the Fed is likely to be is fairly key. There is a risk that the Fed could under-deliver and pull yields lower,” Hewson said.

On Tuesday, the Dow Jones Industrial Average closed up 0.2%, the S&P 500 gained 0.48% and the Nasdaq Composite added 0.22%.

Crude oil prices gained as the EU gave details of its planned ban on Russian oil imports and other new sanctions targeting Russia’s top lender Sberbank and Russian broadcasters, which would be blocked from European airwaves.

Brent crude futures were up 3.6% at $108.77 a barrel. West Texas Intermediate crude futures gained 3.7% to $106.17.

 

Key figures at around 0720 GMT

Hong Kong – Hang Seng Index > DOWN 1.1% at 20,869.52 (close)

London – FTSE 100 > UP 0.1% at 7,565.78

Tokyo – Nikkei 225 > Closed for a holiday

Shanghai – Composite > Closed for a holiday

West Texas Intermediate > UP 1.4% at $103.79 per barrel

Brent North Sea crude > UP 1.2% at $106.19 per barrel

New York – Dow > UP 0.2% at 33,128.79 (Tuesday close)

 

  • Reuters with additional editing by Sean O’Meara

 

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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